Why retire early?

People have many different reasons for wanting to retire early, but the one I hear most often is the desire to quit their job. Sure, many of us hate our jobs, but why not consider a change in career direction?

While I know that not everyone can afford to do so immediately, and changing careers may require retraining or picking up new skills, there could be many options available that you may not have already considered. It’s a good idea to access your situation carefully, looking at how you can adjust your work/life balance and discussing with your employer about potential options to making your workplace more enjoyable.

In the end, you don’t have to stay in a place you simply feel is not a good fit. I’m sure there are lots of skills that you will have acquired that are transferable into whatever you want to do next.

Phased retirement may be a better option for some. This is where you reduce your working hours gradually, without quitting your job altogether. Your employer may not be keen for you to do this, but you could always look for part-time work.

Do you have enough savings?

Early retirement means your savings and investments will have to last for more years, meaning you’ll either have to make do with less money each month, or you’ll have to save more (potentially, much more) in each of your working years.

Leaving the workforce at an earlier age means that you’ll have less years to contribute to your pension pot. This means you’ll need to save more in each year to build up the same level of savings that you would otherwise have been able to do with later retirement. But given that you’re also drawing down funds from your savings and investments at an earlier age, you’ll also need a bigger pension pot to maintain your desired level of income in each year of retirement.

What’s more, beware of unexpected expenses, and set aside some money for unforeseen financial costs. Many people also underestimate their life expectancy, potentially leaving their financial security at risk in later life.

State Pension

Remember, you’ll probably won’t get the State Pension until the age of 66 or later, depending on when you were born. You’ll also need 35 qualifying years to get the full new State Pension, which you may not achieve with early retirement. And in any case, the maximum amount that you can get from the State Pension is just £164.35 a week, or £8,546 a year — a figure that won’t go very far with even a basic lifestyle.

So, unless you make the sacrifice of saving more in each year, you might get bored and miss working. And if you run out of money, you may find it more difficult to re-enter the workforce when you have a long employment gap.

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Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

With the FTSE 100 once again trading above 7,500, it’s getting harder to find attractively-valued dividend stocks. Thankfully, despite the generally expensive market, there are still some high-quality blue-chip dividend stocks out there that would make great income investments.

Indeed, here are three FTSE 100 stocks which offer a tempting combination of both low P/E multiples and high dividend yields.

Cash flows

High yield stocks tend to come from sectors which produce strong cash flows, and this explains why the integrated oil & gas majors pay some of the biggest dividends. Unsurprisingly, with a dividend yield of 5.3%, BP (LSE: BP) accounted for roughly 7% of the FTSE 100’s total dividend payments last year.

With profits bolstered by higher oil prices, I expect BP’s share of FTSE 100’s dividend pie would rise higher. Underlying replacement cost profit for the first half of 2018 more than doubled to $5.4bn, against last year’s figure of $2.2bn. Meanwhile, the price of Brent crude oil has continued to trend higher.

In the absence of any major acquisitions, BP looks set to produce more operating cash flow than it can reinvest in the business. Some of this excess cash flow could be put to use in cutting its debt pile — which is only starting to decline. But that still leaves plenty of room for the company to grow its payout.

Valuations are undemanding too, with shares in BP trading at a forward P/E of 11.2, against the FTSE 100’s average of 13.0.

Special dividends

Elsewhere, housebuilder Taylor Wimpey (LSE: TW) is another stock to watch out for. The stock is down 16% since the start of the year, and this has helped to lift its forecast dividend yield for the current year to 9.3%.

Although this high yield comes mostly in the form of special dividends, which clearly shows that management is making no such commitment to maintain payouts at such a high level indefinitely, current payouts are backed by robust earnings and a strong balance sheet. In fact, Taylor Wimpey has just over 9% of its market value tied up in cash, with a net cash position of £525m as at 1 July.

Despite a slowing housing market, City analysts expect underlying EPS growth of 4% in each of the next two years. Based on these figures, the shares are trading at a forward P/E of 9.1, an undemanding multiple which reflects significant Brexit-related uncertainty surrounding the sector.

Turnaround play?

Standard Life Aberdeen (LSE: SLA) is another beaten-down stock. Since the start of the year, shares have fallen by nearly 30%, as investors pulled a net total of £16.6bn from the asset manager.

Amid rising competition from passive funds, and recent regulatory changes, conditions for the asset management industry continue to be challenging. This has driven recent fund outflows and fee compression, which have squeezed profits. However, things may soon be about to stabilise, as structural tailwinds from the growing UK pension market create growth in the industry.

What’s more, Standard Life Aberdeen is set to reap the benefit of roughly £350m in annual cost-savings from synergies generated by its merger with Aberdeen Asset Management, as it seeks to remove complexity and duplication in its operations.

Shares in the company trade at 12.4 times its expected earnings in 2018, and offer a forecast dividend yield of 7.4% this year.

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Jack Tang has a position in Taylor Wimpey plc. The Motley Fool UK has recommended Standard Life Aberdeen. 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.

Commercial properties can offer great advantages to investors, but there are also many responsibilities to consider. Finding commercial tenants is never as easy as finding residential ones, and in many cases, it may require specific technical expertise. Your obligations to commercial tenants will also differ from residential ones — for instance, business tenants normally have rights of security of tenure under the Landlord and Tenant Act (1954).

REITs

Keeping this in mind, investing in a real estate investment trust (REIT) rather than buying a physical property might be a better investment for you. REITs can offer returns comparable to those of physical properties, yet they are relatively hassle-free and offer the benefits of diversification. Shares in REITs are also more liquid, enabling you to cash-out of your investments much more easily.

For investors looking for broad exposure to the UK commercial property market, British Land (LSE: BLND) is worth a closer look. The company, which invests in a mix of high quality retail assets and campus-focused London offices, currently trades at a 36% discount to its net asset value (NAV). As such, prospective investors have the opportunity to pick up shares in a prime commercial property portfolio for significantly less than the sum of its parts.

Dividend yield

Another advantage of British Land’s low valuation for prospective investors is the effect that has had on its dividend yield. The yield, which is inversely related to price, has risen substantially from a five-year historical average of 4% to 4.9% now. And looking ahead, shares in British Land offer a forward dividend yield of 5.1%, with City analysts expecting dividends per share will rise 3% this year, to 31p.

Those tempted by its high yield should, however, be prepared for heightened volatility in the short- to medium-term. Sluggish UK economic growth has weighed heavily on valuations, and nobody yet knows for sure what kind of environment property markets will end up facing in the possible event of a ‘hard’ Brexit.

Regeneration

Elsewhere, U and I Group (LSE: UAI) is another stock worthy of consideration. Although not technically a REIT, the regeneration-focused property company offers strong growth potential on the back of its broad and deep pipeline of developments.

In cities ranging from London, Manchester and Dublin, it has a pipeline of existing projects with a gross development value in excess of £7bn, against the company’s NAV of just under £380m. This includes its partnership in the £1.1bn urban regeneration project in Mayfield, Manchester, joint ventures and a mix of public-private partnership (PPP) investments. 

Demonstrating significant progress on the re-positioning of its investment portfolio, development and trading gains last year totalled £68.3m. Looking ahead, management expects gains to be slightly lower going forward, with anticipated returns averaging £50m or more over the next three years.

Trading at a forward P/E of 13.5 and offering a prospective dividend yield of 6.1%, value investors should keep an eye on U+I shares.

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Jack Tang has no position in any 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.

Make the most out of your allowance

The government sets a limit on the amount that you can invest in ISAs each year, and for the current tax year, there’s a maximum subscription allowance of £20,000. You can divide this in any way across a simple cash ISA or one through which you by shares, as well as the Lifetime ISA (maximum of £4,000) and an Innovative Finance ISA, provided you stay within the combined annual limit. You cannot carry forward any of the allowance to future years, so any unused allowance in a tax year will be lost forever.

Investing with a lump sum at the start of the tax year enables you to be fully invested as early as possible, which gives you the greatest potential for growth. But by regularly investing, you have the opportunity to spread your risk. The effect of regular investing is that you will be buying assets at different prices on a regular basis, say monthly, rather than just once. This enables you to smooth out volatile price movements — and with automatic regular investments, it can also make it easier for you to stick to your investment plan.

Choosing the right ISA provider

Choosing an ISA provider can be more complicated than it sounds. The right provider can open up a wider range of investment opportunities, whereas others may restrict your options.

And what may be the right choice for someone else may not be best for your investment needs. You should consider what you actually want to trade, how much financial advice you require and whether or not you are happy to place trades online.

It’s also important not to overlook the costs of trading. Account fees and dealing commissions can add up much more quickly than you think, and it can have a big impact on returns through the effects of compounding. Keeping this in mind, it’s also a good idea to keep your portfolio turnover as low as possible.

Picking the right investments

With a wide range of investment options available for a stocks and shares ISA, deciding what to buy can be daunting for both new and experienced investors.

You could invest directly in stocks. Or you can buy an actively managed fund, which can give you instant diversification from a single investment. You also get a professional fund manager, who makes all the key investment decisions on behalf of investors, meaning you won’t need to worry about spending time researching companies yourself. Individual investors tend to go for unit trusts or open-ended investment companies (OEICs), but investment trusts are also worth considering.

Another option would be to invest in exchange-traded funds (ETFs) that track popular stock indices, such as the FTSE 100 or the S&P 500. Investing in ETFs can be a very low cost way to access the performance of an index, with some offering ongoing charges of as low as 0.07%.

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Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Risk-Return trade-off

Cash ISAs are simple — they work in much the same way as an ordinary savings account, except they allow you to earn interest without being liable for income tax. You get the security of regular interest, but if the inflation rate is higher than the interest rate you receive, then the spending power of your savings may be eroded.

Over the longer term, investments in the stock market typically produce better returns than cash, often in excess of the inflation rate. However, this comes at a trade-off in the form of added risk — the value of your investment in a stocks and shares ISA can fall, as well as rise, depending on the performance of your investments.

Investment time frame

Choosing between funding a cash ISA and stocks and shares ISA should depend on your investment goals and your own personal circumstances. Generally speaking, if you’re planning to withdraw your investments within the next five years — say for a deposit on a new home, debt repayments or personal expenses, then a cash ISA will usually be a better choice — it is, at the very least, the safer choice.

On the other hand, if you are saving up for retirement which may be decades away, stocks may be better. Although they are riskier — over longer time periods, stocks have a decent track record of growing your capital.

Tax allowances

Personally speaking, given that I don’t expect to use up my personal savings allowance — which is currently £1,000 in interest income per year for basic-rate taxpayers, £500 for higher-rate taxpayers and £0 for additional-rate taxpayers, I would stick with just a stocks and shares ISA.

That’s not to say that I would avoid cash entirely. Emergency cash is an essential part of everyone’s financial plan — this is the money you set aside for unexpected expenses. I would just keep it outside of the ISA, unless I had some unused allowance in a given tax year.

With expected returns likely to be higher for equity investments, the tax benefit of a stocks and shares ISA can often be greater than that of a cash ISA. But which has the bigger benefit to you personally depends ultimately on your own personal circumstances and investment returns. For instance, if you’re a (very) big cash saver or an additional-rate taxpayer, a cash ISA may well give you a greater tax benefit in some years. And there are also the dividend and capital gains tax allowances to consider.

Transfer

If you’re still torn between the two ISAs, then why not consider getting both. There’s nothing stopping you from doing this, and you can decide to move money between the two at a later stage (of course, tax rules may change). Just make sure that you ask your new ISA provider to arrange the transfer, otherwise you may lose the tax-free status of your investments.

That’s because, if your make a withdrawal from your ISA, you don’t reset your annual subscription limit. And remember, there’s a maximum subscription allowance of £20,000 in a tax year, which you can split across all types of ISAs.

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Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Multi-asset

One such fund is the Lindsell Train Investment Trust (LSE: LTI). Shares in the multi-asset investment trust have delivered a total return of 233% over the past five years, allowing it to easily surpass the performance of its benchmark MSCI World Index, which gained just 76% in sterling terms. The FTSE 100 has fared even worse, with a total return of just 40% over the same period.

This one seeks to maximise long-term total returns by investing in a diversified portfolio of financial assets, including equities, and other Lindsell Train funds. But what really sets this trust apart from others is that it also owns a significant minority stake in its investment manager, Lindsell Train Limited.

This 24% stake in the investment management company co-founded by Michael Lindsell and Nick Train accounts for 43% of the value of its portfolio. However, with such a large position in a single unquoted investment, those who invest in the trust are highly exposed to fluctuations in the valuation of that single company. And although its position in Lindsell Train Limited has no doubt played a big role in the fund’s recent outperformance, past performance may not be indicative of future returns.

One important reason to be cautious is the high premium at which its shares trade against the underlying value of its assets. Shares in the trust are among the most expensive in the investment trust market — currently trading at a 41% premium to its net asset value (NAV), which is considerably higher than its 12-month average premium of 26%.

Although this reflects strong investor sentiment towards the fund, due to faith in management’s ability to outperform the market, the risk of losing money should the trust fall out of favour is greatly amplified.

Japan smaller companies

Baillie Gifford Shin Nippon (LSE: BGS) is another fund that has massively outperformed the FTSE 100. It aims to deliver attractive long-term capital growth by investing in value stocks in Japan’s small-cap space.

Shin Nippon, which means ‘new Japan’ in Japanese, has achieved this outperformance by focusing on fast-growing Japanese companies with innovative business models and dynamic management teams. The trust has a fantastic stock picking track record, and has achieved a five-year total return on 216%.

Its job has been made easier by the fact that many smaller Japanese companies have no broker coverage at all. This limited availability of sell-side coverage provides inefficiently priced opportunities which may be uncovered by the fund’s in-house research team.

GBP/JPY

Of course, the yen’s strength against the pound (or more correctly, sterling’s weakness) has also been an important contributor to the fund’s performance — but that doesn’t explain it all. This is because the trust has also significantly exceeded the gain of its benchmark, the MSCI Japan Small Cap Index, which achieved a return of 98% in sterling terms over the same period.

Shares in the trust trade at a 6% premium to NAV, which seems reasonable, being in line with its 12-month average premium of 5%.

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Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

When people discuss dividend stocks, they tend to think only of big blue chip names. Many investors simply don’t associated small-cap stocks with dividends. But with a great deal of smaller companies punching above their weight on the income front, now may be the right time to consider small-cap dividend stocks for their attractive yields.

Telford Homes

Housebuilders are big dividend payers, with the sector offering an average prospective dividend yield in excess of 7%. Large-caps in the sector tend to offer more income, but many of the smaller rivals have stronger dividend cover and better growth prospects.

One small-cap housebuilder which particularly stands out to me is Telford Homes (LSE: TEF). Amid a slowing housing market, the London-focused residential property developer is bucking the trend.

The company’s financial performance is going from strength to strength. Last year, Telford’s pre-tax profits increased 35% to £46m, well in excess of original market expectations. Meanwhile, revenues increased to a record high of £316.2m, while the company reported a strong improvement in adjusted operating margin of 3.3 percentage points, up to 16.7%.

Growth

Looking ahead, management reckons Telford is well placed to deliver pre-tax profits exceeding £50m for the year to 31 March 2019, representing a 100% increase over four years. With such confidence, Telford raised its dividends for the full year to 17p a share, giving its shares a current yield of 4.1%.

Although the current yield pales in comparison to its sector peers, there’s considerably more potential for dividend growth with the company. Not only is its payout ratio significantly smaller than its rivals — at just over a third of its earnings, but future earnings are currently forecast to climb faster.

Build to rent

Moreover, Telford’s meaningful and growing exposure to the nascent build-to-rent market means its earnings ability should be less volatile than that of its sector peers. On build-to-rent contracts, the company benefits from forward funding, which reduces the amount of its own equity used during construction, enabling it to earn a much higher return on capital.

Although this comes at the cost of lower gross margins, due to savings in selling expenses and interest costs, greater exposure to the build-to-rent market should help it to weather the slowing housing market better than many of its rivals.

Shoe Zone

Elsewhere, I reckon Shoe Zone (LSE: SHOE) is another small-cap dividend stock to consider. At its current share price, the discount retailer offers income investors a prospective dividend yield of 6.2%.

Consumers may be abandoning the high street in favour of online shopping, but one area which is proving more resilient than most is the discount segment of the retail market. Keeping that in mind, shares in Shoe Zone, the UK’s leading value footwear retailer, have outperformed many of its sector peers with a gain 11% over the past 12 months, against the general retailer sector’s 8% dip.

Sure, the footwear retailer isn’t immune to structural issues affecting the sector — revenues have slipped for three consecutive years. But things appear to be stabilising, with revenues in the six months to 31 March growing by 1.1% to £73.7m. On the cost front, rents on renewals fell on average by 22%, giving it a full year saving of £100,000. And what’s more, with the balance sheet in a net cash position, Shoe Zone has the financial flexibility to maintain payouts for quite some time.

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Jack Tang has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Keeping that in mind, I reckon would-be investors should instead consider an emerging alternative investment class — infrastructure. In a volatile environment where yields are under pressure and capital growth is scarce, infrastructure investments can offer an attractive combination of both dependable income and inflation-linked growth.

Investment trusts

Infrastructure investment trusts have proved extremely popular with investors in recent years, and that attraction has certainly continued into 2018. Market sentiment towards many infrastructure investment trusts has picked up strongly in the second half of the year, following a slight dip in confidence within the sector in the immediate aftermath of Carillion’s collapse.

For example, the HICL Infrastructure Company (LSE: HICL) saw its share price gain by nearly a fifth to 159p a share, from a 52-week low of 133p on 9 April. With the rise, shares in the infrastructure company currently earn investors a prospective dividend yield of 5.0%, on its target dividend per share of 8.05p for the full year.

The company, which invests in a mix of public-private partnership (PPP) infrastructure projects, earns stable cashflows from essential physical assets, such as hospitals, schools, roads and utility facilities.

Carillion’s liquidation

Carillion’s liquidation had hit HICL harder than most, as the facilities manager and construction contractor was its biggest counterparty, involved in 15 of its 115 PPP projects. The company booked a 2.2% reduction in its net asset value (NAV) earlier this year, but has since made solid progress resolving the consequences of the Carillion’s collapse.

Commercial terms have been agreed with long-term replacement facilities management subcontractors on six projects, with negotiations on a further three projects progressing. Overall indicative pricing on the replacement subcontracts was in line with its expectations and, as such, no further impact to its NAV is expected at this stage.

Meanwhile, shares in HICL are trading at a considerably smaller premium to its NAV than in the past. Although the shares have trended considerably higher over the past few months, its premium to NAV is just 6%, which is just over half its five-year average historical premium of 11%.

Infrastructure debt

Another trust to consider is GCP Infrastructure Investments (LSE: GCP). Unlike HICL, GCP Infra doesn’t invest in equity stakes in infrastructure projects, but instead in the debt issued by infrastructure projects.

As a buyer of debt, as opposed to equity, this investment trust offers a potentially less risky way to get exposure to the infrastructure asset class. Firstly, there’s substantially less operational risk involved, since equity holders, being the residual claimants of a company’s assets, usually take the first hit from any impact on profits. Meanwhile, the income earned from loans-to-infrastructure projects is generally still secured by public sector-backed cash flows. And, where possible, investments are structured to benefit from partial inflation protection.

Trading at a 10% premium to its NAV, GCP Infra currently offers a prospective dividend yield of 6.1%. With that, it’s not trying to shoot the lights out — but just to deliver a steadily increasing dividend, with low risk, some inflation protection, and low correlation against other asset classes.

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Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Why?

SSE blamed the slide in profits mainly on short-term factors, including the rise in wholesale gas prices. The weather, which was unusually dry, still and warm, not only reduced household use of gas and electricity but also lowered the amount of electricity generated by renewables. Meanwhile, the company only raised prices once this year, unlike many of its competitors.

The issues in the first half of the year seem to be only short-term in nature, but this week’s profit warning shows that volatility in the overall performance of the wholesale businesses may be here to stay. What’s more, some headwinds aren’t going to ease any time soon, with Ofgem’s proposed price cap set to add to retail pricing pressures and significantly lower adjusted operating profit for the retail business in the full year.

Dividends untouched

That said, the company remains committed to the dividend policy set out earlier this year, which underscores management’s confidence in the underlying performance of SSE’s businesses. The company expects to raise this year’s dividend by 3% to 97.5p, representing dividend growth which is broadly in line with expectations for RPI inflation. At its current share price, this would give its shares a prospective yield of nearly 9%.

And following the planned spin-off of its retail supply business to shareholders (and merger with Innogy’s Npower), SSE plans to re-base its dividend payout to 80p per share in 2019/20, before returning to dividend growth which will keep pace with RPI inflation in the three following years to March 2023.

Water companies

It’s not just the shares of energy suppliers that have been hit by pricing pressures. Water companies, such as United Utilities (LSE: UU), are set to face a tougher regulatory regime, with the regulator Ofwat signalling a much stricter price control regime for the upcoming regulatory review.

In its submission to the regulator, United Utilities has pledged to cut average bills by 10.5% in real terms between 2020 and 2025 — a reduction of roughly £45 per customer. It’s a significantly bigger cut to average bills than five years ago, and has sparked concerns about the safety of its dividends beyond 2020.

5.6% yield

The company, which has forecast dividend cover of around 80% next year, will likely find it difficult to afford its current progressive dividend policy, especially given its high debt pile. Net debt (including derivatives) was £6.87bn as at 31 March 2018, up from £6.58bn last year.

Shares in United Utilities have dipped by more than 20% over the past year, which has helped push up its dividend yield to 5.6%. This is significantly higher than its five-year average dividend yield of 4.2%, and could trend even higher with RPI-linked dividend growth already pledged for the next two years.

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Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

A growing number of buy-to-let landlords have been moving towards commercial property following recent regulatory and tax changes that have made investing in residential buy-to-lets less attractive. The characteristics of commercial property are, however, different to residential property. For starters, investments in retail and office property generally require greater amounts of capital and specific technical expertise.

Commercial properties are also regarded as higher-risk investments, due to typically higher average vacancy rates, which can make it difficult for ordinary investors to rely on a single property investment for income. Instead, most investors would probably be better off pooling their money with other investors, via a property investment trust or a REIT, as this will allow you to benefit from added scale, diversification and the skill of the fund manager in looking after your investments.

Keeping that in mind, here are three commercial property investments that deserve a closer look.

Diversified portfolio

With total assets of nearly £1.5bn, the F&C Commercial Property Trust (LSE: FCPT) is one of the UK’s largest actively managed closed-ended companies investing directly in commercial property.

F&C aims to provide investors with an attractive level of income from a diversified portfolio of prime commercial property assets. The managers invest principally in three commercial property sectors: office — retail and industrial — focusing on investments that they believe will generate a combination of long-term growth in capital and income for shareholders.

The managers have a strong track record of delivering robust returns to its shareholders, after having generated a net asset value (NAV) total return of 82% over the past five years. There’s great income appeal too, with the company paying monthly dividends that currently annualise at 6p per share, giving prospective investors a yield of 4.2%.

Less retail exposure

Looking ahead, it may be a good idea to find a property company with less retail property exposure. With bricks and mortar retailers continuing to cede ground to online sellers, investors are becoming more sceptical towards retail property valuations.

With that in mind, Picton Property Income (LSE: PCTN) may be a better pick. It has just 23% of assets weighted towards retail and leisure, compared to 43% for the F&C Commercial Property Trust. And in place of the company’s lower exposure to retail, Picton is tilted more heavily towards the more resilient industrial and warehousing sector, which accounts for 41% of total assets.

Unsurprisingly, its portfolio construction has served it well of late. The company’s total return for the 12 months to 30 June 2018 was 14.2%, which was roughly double the return achieved by the F&C trust over the same period.

REITs

The REIT space is another good place for investors to look right now, as a number of property giants are trading at big discounts to the value of their underlying assets.

For example, shares in London-focused Derwent London (LSE: DLN) trade at a 21% discount to NAV, for no other reason aside from the weak investor sentiment towards office space in the capital. Analysts reckon the office market in the capital is particularly vulnerable to a ‘no-deal’ Brexit outcome, given the city’s outsized exposure to financial services.

Nonetheless, Derwent London continues to deliver steady earnings growth, with underlying earnings up 14% in the first half of 2018, to 51.8p per share. And on the back of this, the company raised its interim dividend by 10%, to 19.1p per share.

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Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.