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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.
Please word that tax remedy will depend on the person circumstances of every shopper and could also be topic to vary in future. The content material on this article is supplied for data functions solely. It isn’t supposed to be, neither does it represent, any type of tax recommendation.
Leases
LondonMetric owns and leases an enormous portfolio of warehouses, comfort shops, and healthcare buildings. And it returns 90% of its rental earnings to traders as dividends.
The agency’s common lease has 17 years to expiry. Importantly, its use of triple-net leases means tenants are answerable for insurance coverage, taxes, and upkeep.
That provides LondonMetric a number 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 traders, which may restrict its potential to take a position for progress. However the agency has different methods obtainable.
Progress
LondonMetric can’t simply retain its rental earnings, however it will possibly look to broaden and enhance its portfolio by way of mergers and acquisitions. And that is what it has been doing just lately.
In the previous couple of years, the agency has made some massive strikes to restructure its portfolio. This has concerned buying different companies after which promoting off the weaker properties.
This is usually a dangerous strategy – it includes debt and there aren’t any ensures about sale costs. And that creates a danger that rising rates of interest can result in larger prices.
When it really works, although, it may be an efficient approach for a REIT to construct a horny property portfolio. And that’s what LondonMetric has been doing over the previous couple of 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 & Common’s dividend isn’t lined 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 believe there are higher alternatives elsewhere.
A 6.5% dividend yield seems like quite a bit. However it’s beneath the FTSE 100’s long-term common annual return and the index as an entire returned over 20% in 2025.
For traders concentrating on passive earnings over the subsequent few years, I believe this might be a fantastic 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 usually face structural challenges with regards to progress and LondonMetric is not any exception. The problem comes from having to distribute earnings to shareholders.
Which means that growth alternatives are sometimes restricted. So whereas I believe the inventory might be a fantastic supply of passive earnings, the entire return equation seems much less enticing to me.
There’s nothing mistaken with any such enterprise and I would properly come again to it additional down the road. However for now, I believe there are different shares which might be extra appropriate for my portfolio.
