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There aren’t many FTSE 100 dividend shares with yields above 6%. And ones the place there isn’t a serious drawback with the underlying enterprise are much more uncommon.
That makes LondonMetric Property (LSE:LMP) an uncommon discover. It’s an actual property funding belief (REIT) with a 6.5% yield that appears like a dependable supply of long-term passive earnings.
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Leases
LondonMetric owns and leases an enormous portfolio of warehouses, comfort shops, and healthcare buildings. And it returns 90% of its rental earnings to buyers as dividends.
The agency’s common lease has 17 years to expiry. Importantly, its use of triple-net leases means tenants are chargeable for insurance coverage, taxes, and upkeep.
That provides LondonMetric plenty of safety from rising prices. That is particularly essential, since lengthy leases imply alternatives to barter hire will increase are prone to be restricted.
As a REIT, the corporate has to distribute 90% of its taxable earnings to buyers, which may restrict its capacity to take a position for progress. However the agency has different methods out there.
Progress
LondonMetric can’t simply retain its rental earnings, however it could look to increase and enhance its portfolio by way of mergers and acquisitions. And that is what it has been doing just lately.
In the previous few years, the agency has made some huge strikes to restructure its portfolio. This has concerned buying different companies after which promoting off the weaker properties.
This could be a dangerous strategy – it entails debt and there aren’t any ensures about sale costs. And that creates a threat that rising rates of interest can result in larger prices.
When it really works, although, it may be an efficient method for a REIT to construct a pretty property portfolio. And that’s what LondonMetric has been doing over the previous few years.
Returns
LondonMetric Property isn’t the one FTSE 100 inventory with a excessive dividend yield. However British Tobacco’s enterprise is in decline and Authorized & Normal’s dividend isn’t coated by its earnings.
Neither of those is the case with LondonMetric, so ought to I purchase it for my portfolio? It is likely to be a shock to listen to that my reply is ‘no’ – I feel there are higher alternatives elsewhere.
A 6.5% dividend yield seems to be like quite a bit. However it’s under the FTSE 100’s long-term common annual return and the index as a complete returned over 20% in 2025.
For buyers focusing on passive earnings over the following few years, I feel this may very well be a terrific inventory to contemplate. However whereas that is likely to be me sooner or later, it isn’t my ambition proper now.
Ups and downs
REITs typically face structural challenges in relation to progress and LondonMetric is not any exception. The problem comes from having to distribute earnings to shareholders.
Which means that enlargement alternatives are sometimes restricted. So whereas I feel the inventory may very well be a terrific supply of passive earnings, the whole return equation seems to be much less engaging to me.
There’s nothing fallacious with such a enterprise and I’d effectively come again to it additional down the road. However for now, I feel there are different shares which might be extra appropriate for my portfolio.
