The FTSE 100 is full of dividend bargains right now, but there’s one stock in particular I’m more interested in than any other. This company LandSec (LSE: LAND). Formerly known as Land Securities Group, LandSec is the largest publicly traded real estate investment trust (REIT) in the UK.
Underperforming
The business owns and operates nearly £14bn of offices, retail parks, shopping centres, hotels and warehouses across the country. Together, these assets throw off hundreds of millions of pounds in rental income every year, and most of this is returned to shareholders because of LandSec’s REIT structure.
Over the past 12 months, shares in the real estate company have plunged in value. Including dividends, its shares have returned -10% over the past year, and they’ve underperformed the FTSE 100 by around 9% per annum during the past five years.
Following this performance, at the time of writing, the stock is trading at a discount of 40% to its net asset value, which looks to me to be too cheap to pass up.
The Brexit question
The question is, why is this real estate giant trading at such a deep discount to the value of its assets? The answer, like so many others at the moment, seems to be Brexit. Investors appear to be concerned about what will happen to the UK commercial property market if the UK leaves the European Union without a deal at the end of October. And rather than waiting to find out, they’re selling up.
On top of this, LandSec has a lot of exposure to retail properties. Several companies in its portfolio have already forced through CVAs and there could be more to come. As the crisis in the retail sector has taken its toll on property values, the enterprise informed investors back in May that its assets declined in value by £557m during its financial year to the end of March.
Look to the future
Still, despite this pressure, I think investors’ concerns about the company are overblown. LandSec might have had to mark down its property values in its last fiscal year, but revenue profit, a measure that excludes property price swings, jumped 8.9%.
On top of this, thanks to the booming demand for office property in London, the firm has decided to re-start the development of three speculative office developments in the capital this year, after holding off since 2016.
This change in direction seems to suggest management believes London’s property market is ripe for investment, and I think this is a positive sign for investors.
As well as its yawning discount to net asset value, shares in LandSec also support a dividend yield of just under 6%, at the time of writing. This means you’ll be paid to wait for market sentiment to improve. With an upside of nearly 70% on offer to net asset value, I think it will be worth the wait.