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As the M&G fund is suspended, is this FTSE 100 5%-plus dividend a top buy or an investor trap?

Retail conditions in the UK are tough and the country’s high street operators (both large and small) seem to be quite helpless to stop the rot.

It’s not as if Britain’s bricks-and-mortar retailers weren’t in decline long before the Brexit cloud smashed consumer confidence, though. The rapid rise of e-commerce has seen footfall across our shopping malls, retail parks, and high streets steadily dribble lower, and the problems for physical stores look set to mount as companies invest more and more to improve their competitiveness in the critical online marketplace.

Fund suspended

The impact of this rapidly changing retail environment is giving the likes of shopping space operator British Land (LSE: BLND) and its industry peers a bad time, too. And serious investor news this afternoon from M&G illustrated just how tough trading conditions are.

The fund manager said that it was suspending all trading on its M&G Property Portfolio fund on account of “continued Brexit-related uncertainty and ongoing structural shifts in the UK retail sector,” adding that “given that these circumstances and deteriorating market conditions have significantly impacted our ability to sell commercial property, we have temporarily suspended dealing in the interests of protecting our customers.”

M&G commented that the tough conditions for retailers meant that it had witnessed “unusually high outflows” for its retail investors and that it had struggled to meet the sudden and sustained level of redemptions of late. It said that suspending fund activity would allow its managers to replenish cash levels by selling off assets in an “orderly manner” which will “preserve value for our investors.

It gave no indication as to how long the fund, which invests in office space and shopping centres, will be suspended for, though it will be reviewed on a monthly basis.

Big dividends vs big risk

British Land’s share price has continued to rise in Wednesday trading despite the news, with buyers showing little regard for M&G’s troubles. Big mistake, in my book, and especially in the wake of its ghoulish half-year report of last month.

Back then the FTSE 100 firm announced that revenues had slumped 34% in the six months to September, while pre-tax losses had widened from £42m a year earlier to a whopping £440m. Meanwhile the value of its property portfolio fell 4.3% to £11.7bn as the value of its retail parks, malls, and department stores all crumbled by double-digit percentages.  

Now City analysts expect earnings at British Land to fall 6% in the current fiscal year (ending March 2020), and with Brexit uncertainty threatening to persist all through 2020 –and possibly beyond – it’s certainly difficult, in my opinion, to see the property giant bouncing back any time soon.

In fact, despite it bulging 5.4% dividend yield, it’s a share I’m  happy to avoid; a forward price-to-earnings ratio of 17.7 times is far too high for such a risky share and could prompt waves of selling before much longer.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended British Land Co. 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.