2020 has been a catastrophe for dividend investors as shareholder payouts have fallen like dominoes. But, as a dividend investor myself, I haven’t thrown in the towel. There are lots of quality UK shares that still boast big dividend yields, despite the economic downturn. Land Securities Group also appears worth a look on account of its big dividend yields. For the retail property operator, the reading sits at a whopping 4.2%.
In my opinion, the risks to this shopping operator far outweigh the benefit of chubby near-term yields.
For the retail sector it looks like the bull market could be some way off. And, of course, this has huge ramifications for owners of shopping centres and retail parks like Landsec. The UK share saw just 62% of rents due by 29 September collected within five working days, according to latest financials. That’s down from 95% at the same time in 2019.
Retail sales are slumping
Recent retail industry data suggests that things could get much worse for Landsec and its peers too. The Confederation of British Industry’s (CBI) monthly retail sales index just slumped to -23 for October, reversing sharply from +11 last month. It was also the sharpest fall since June.
It’s looking possible that things could get much worse for the physical retail sector before they get better too. Localised lockdowns in the UK are intensifying, and the threat of a national lockdown is still lurking. For UK shares like Landsec this would prove a catastrophe, with more missed rent collections on the horizon, and more rent deferrals and reductions potentially on the cards too.
This is an especially problematic scenario given the state of Landsec’s balance sheet. It has a colossal amount of debt on its books with net debt clocking in at £3.92bn as of June. This could certainly hamstring the UK share’s plan to reinstate dividends when half-year results are unpacked in early November. And it could rise to unsustainable levels should conditions on the high street remain tough.
Hammerson’s desperate £800m-odd rescue plan last month illustrates the risks highly-indebted retail property owners like this pose to investors.
I’d rather buy other UK shares today
Landsec’s share price has fallen 45% in 2020 on account of these worries. But it’d be a mistake to think this UK share’s problems are quite recent. It’s share price has dropped by almost two-thirds during the past five years. And it’s quite likely, in my opinion, Landsec will keep on dropping, and not just because of the worsening retail landscape. The surging popularity of e-commerce also threatens the long-term future of firms exposed to the physical retail segment like this.
This is why I’m happy to forget about Landsec’s market-beating dividend yield. It explains why I don’t care about its low forward price-to-earnings (P/E) ratio of 13 times. I reckon it could end up costing ISA investors like me a fortune. Besides, there are much better UK shares with big dividends to choose from today.
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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.