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ISA investors! Will this FTSE 100 5%-plus yield be forced to cut the dividend?

Do hopes of big dividends make Land Securities Group (LSE: LAND) a brilliant destination for your investment cash today? It certainly provides a lot for investors to shout about owing to its monster 5.4% forward dividend yield.

That said, LandSec is a share that is loaded with risk. The troubles for the UK retail sector are well documented and more specifically for shopping centre operators like Landsec, which are suffering from a mix of subdued consumer spending right now and the growth of online retail.

Recent newsflow has raised my concerns over the health of this sub-sector of the property market, too. Last week Intu Properties declared that political and economic uncertainty is causing clients to delay new lettings and that the number of corporate voluntary arrangements (CVAs) have also surprised them in recent months.

Indeed, it said that the impact of CVAs such as those of Arcadia and Monsoon would cause like-for-like net rental income to fall by 9% in 2019, and the bad news continued with Intu predicting more contraction (albeit at a slower pace) next year.

Urgh!

Land Securities of course isn’t a stranger to shocking the market. When it last updated the market in May it declared that its pre-tax losses had widened to £123m in the 12 months to March 2019 and that weak retail markets had forced the value of its assets to fall £557m (or 4.1%) year on year.

And back then the FTSE 100 firm warned that more trouble could be coming down the line. It said that “we see no near-term improvement in retail market conditions, with CVA activity set to continue” while adding that “rental values are likely to decline further in shopping centres and retail parks, though we expect continued rental growth in outlets and select leisure destinations.”

Dividends to fall?

It seems that the market has a short memory of this spooky guidance, not to mention the steady slew of shocking key retail indicators since then. The Landsec share price surged in late October as fears over a then-imminent no-deal Brexit evaporated, and while it’s given back some gains since then it still remains 15% more expensive than it was three months ago.

At current prices the property giant trades on a forward price-to-earnings ratio of 15.1 times, a figure which while not high on paper still doesn’t – in my opinion at least – reflect the high chances of earnings forecasts being hacked back. This could come as soon as when half-year results are released on 12 November and force Landsec sharply to the downside.

One final thing: while City analysts are currently expecting more dividend growth in fiscal 2020 (to 47.3p per share), I’m not so sure. This estimate is covered just 1.2 times by predicted earnings while Landsec has little financial wiggle room, either, given that it sits on a £3.7bn debt mountain. In fact, with conditions in its markets worsening I reckon the business may be forced to cut the dividend in the very near future.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Landsec. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.