Many look to the property industry as a way of generating additional income and capital gains in later life — although I think this FTSE 100 company may be a better bet.
The dream of owning a property empire and collecting monthly rental payments from a beach in the Caribbean is, unfortunately, not a reality.
The world of a landlord is often difficult, with troublesome tenants, damaged property, and lacklustre returns, all contributing to the appeal of being a landlord fading rapidly.
But, with just four little letters, an investor can reap many of the steady income benefits of being a considerable property owner, whilst avoiding a great deal of short-falls: these letters are REIT.
A REIT, or real estate investment trust, is a company that owns, operates, or even finances physical property, and through utilising pooled funds from a range of investors, they can allow a steady dividend income to be achieved, through just owning shares in the company.
For my goal of boosting dividend income, I am most attracted to shares in Land Securities Group (LSE: LAND), a FTSE 100 REIT involved in the commercial property sector.
The company has been around for just under 80 years, and in that time has grown to be the largest commercial property and investment company in the UK. Its portfolio includes London office, retail, and leisure spaces, along with retail and leisure facilities in the North of England. In 2022 this portfolio was valued at £12bn, generating rental income of £586m in the 2022 financial year.
At the current share price of 602.6p, Land Securities Group pays a dividend of 6.1%, almost double the current average FTSE 100 dividend yield of 3.65%. In fact, Land Securities Group has been paying a steady dividend for over 30 years, with the dividend forecast to grow by 3.5% this year alone.
I truly believe that this is one of the best opportunities to boost the income generating ability of my portfolio in the current market.
It’s, of course, important to note that REITs haven’t been immune to the tough market conditions of 2022, as the Land Securities Group share price has fallen 22.4% in 2022. Despite positive performance in 2021, it still remains down almost 40% from its pre-pandemic levels.
However, there are signs of improvement, as gross rental income has increased by 3% since 2021, and the portfolio has increased by almost 4% over the year. This is certainly encouraging, as this may present an opportunity for a capital gain in addition to a steady source of dividend income.
For these reasons I would use Land Securities Group as a way to boost my portfolio’s dividend income. The company offers a great way to gain exposure to the UK commercial property sector, with plenty of diversification, and a near 80-year history of operations.
Of course, the past two years have been challenging, and the company’s financial performance has suffered, but I believe it is on the road to recovery, so the opportunity for a steady income and capital gains is very appealing, and consequently a consideration as a new holding within my portfolio.