That means that if I was renting out my house, I’d have lost about 35% of my annual rental income on just that one repair.

I think property investing is like stock market investing. To generate a reliable income, you need a portfolio. Building a property portfolio is out of my reach. But investing in portfolios of high quality property through the stock market is easy and affordable. So that’s what I’ve done.

London focus

One lesson from previous market crashes is that good quality London property tends to be more resilient than anywhere else. This is why one of my top picks for property income would be Landsec (LSE: LAND), the FTSE 100 real estate investment trust formerly known as Land Securities.

Landsec does still own retail property outside London. But this side of its business is being scaled back. According to chief executive Robert Noel, 65% of the firm’s assets by value are in London, and all of its development projects are in the capital.

This strategy hasn’t stopped investors ditching the stock over fears about the future profitability of Landsec’s £2.5bn portfolio of shopping centres. The value of this property fell by 11.7% last year and Mr Noel expects further declines.

Retail exposure is a risk. But Landsec has more than £6.5bn of prime London property to help offset this risk. There’s also a lot of bad news already priced into the stock, which trades at a 37% discount to its net asset value of 1,341p per share.

I’d buy

Landsec has kept debt levels low and has already sold off much of its lower-quality retail property. The firm’s portfolio produced a rental income of £618m last year, 7% higher than the previous year.

For shareholders, a period of uncertainty seems inevitable. But I expect rental income to remain fairly stable. This should support the dividend, which is expected to yield 5.6% this year. I see this as a good entry point for investors wanting a long-term passive income.

Industrial focus

One area where Landsec has no exposure is industrial property. The market for modern warehouse space is booming and there are now a number of REITS specialising in this area.

However, my top pick in this sector is a smaller player, Hansteen Holdings (LSE: HSTN). Hansteen has a market cap of about £400m and owns a portfolio of urban distribution and light industrial properties around the UK.

The company focuses on properties serving local areas rather than the so-called big box logistics properties that are currently attracting premium valuations.

Joint chief executives Morgan Jones and Ian Watson have a track record of good market timing in this sector. They’ve also shown caution and discipline in the face of rising prices, selling some property and returning cash to shareholders.

Together, Mr Jones and Mr Watson own 5.6% — about £22m — of Hansteen stock. This suggests to me that their interests are well-aligned with those of shareholders like me.

At about 92p, HSTN shares trade at a discount of about 10% to their book value and offer a forecast yield of 5.5%. I may buy more over the coming months.

The post Forget buy-to-let! I’d generate a passive income from this FTSE 100 property stock appeared first on The Twelfth Magpie.

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Roland Head owns shares of Hansteen Holdings. The Motley Fool UK has recommended Hansteen Holdings and Landsec. 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.

In fact, you can build a portfolio that includes a diverse range of stocks which together have an average dividend yield of around 6%.

With that in mind, here are two FTSE 100 income stocks that currently have dividend yields of 6% or above. Buying them now could prove to be a shrewd move, with their valuations suggesting that capital growth potential may also be on offer over the long run.

Imperial Brands

With a dividend yield of 10.7%, Imperial Brands (LSE: IMB) offers over twice the income return of the FTSE 100. The company has a long track record of above-inflation dividend growth, with it expected to raise shareholder payouts by 7.8% in the current year. Since its tobacco brands provide it with significant pricing power, its profitability is likely to move higher over the medium term. This could fund continued dividend growth for its investors.

The company also appears to have a growth opportunity within the new product space. E-cigarettes have proved popular among smokers, while a host of new products could likewise eventually replace demand for cigarettes. Although this journey may not be frictionless, it could lead to greater sustainability for the company.

With Imperial Brands currently trading on a price-to-earnings (P/E) ratio of 6.8, it seems to offer excellent value for money. Although regulatory risks may be high, this has often been the case for tobacco companies in recent decades. As such, from a risk/reward perspective, the stock seems to offer strong income investing appeal.

Landsec

Real estate investment trust (REIT) Landsec (LSE:LAND) appears to offer a favourable income and value investing outlook. The commercial property business currently has a dividend yield of 6%, while its price-to-book (P/B) ratio is just 0.6.

This indicates that investors have a pessimistic outlook regarding its future prospects. This is not a major surprise, since Brexit and the political and economic uncertainty it could bring may hold back property prices, as well as demand for a variety of uses. As such, the wider commercial property sector may experience a challenging period that leads to modest capital growth over the short run.

However, Landsec has a diverse and high-quality portfolio of property that, over the long run, is likely to increase in value. Its increasing focus on London may help to insulate it from wider UK economic challenges, although the UK economy is continuing to grow at a faster pace than had previously been expected during the Brexit process.

As such, now could be a good time to generate a passive income, as well as possible capital growth in the long run, from buying shares in the business while its valuation appears to be exceptionally low.

The post 2 FTSE 100 dividend stocks with yields over 6% I’d buy today appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Imperial Brands and Landsec. The Motley Fool UK has recommended Imperial Brands and Landsec. 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.

That’s put pressure on buy-to-let landlords’ profits, which rely on capital gains from property sales and rental income that’s high enough to cover ownership costs.

Falling returns

Rental yields in London now average just 5.4%, according to Hamptons. In the North East, where yields are highest, the figure is 8.7%.

Those numbers may seem attractive. But rental yield — which compares rent to a property’s purchase price — is calculated before costs such as maintenance, insurance, mortgage interest and void periods. Most landlords’ net yield, after costs and tax, will be much lower.

By contrast, a number of good quality FTSE 100 property stocks offer comparable dividend yields that can be received tax-free and with no costs if the shares are held in a stocks and shares ISA. This is where I’d put my money today.

Owning a slice of London

Rather than paying peak prices for houses, I think it makes more sense to buy property when it’s out of favour and prices have fallen. That’s certainly the case at FTSE 100 retail and office landlord Landsec (LSE: LAND), which released full-year results today.

The value of Landsec’s portfolio fell by 4.1% to £13,750m last year. This was mainly driven by an 11.7% fall in the value of the group’s £2,493m portfolio of shopping centres, which includes part ownership of Bluewater in Kent.

However, the value of Landsec’s £5,266m portfolio of London offices was almost unchanged, while leisure and hotel properties also held up well.

Retail property may have further to fall. But investors buying Landsec shares don’t have to pay the asking price. At about 890p, the stock trades at a discount of more than 30% to its net asset value of 1,339p per share. That looks like a comfortable margin of safety to me.

Landsec plans to focus on the London market for future developments. Over the long term, I expect this to be a profitable strategy. In the meantime, the shares offer a cash dividend yield of 5.1%. In my view, this is a stock to buy and tuck away for income.

Another way to play London housing

I’m staying with London for my second pick today. Berkeley Group Holdings (LSE: BKG) is a well-known housebuilder that’s chaired by founder Tony Pidgley.

Mr Pidgley has an enviable record of timing the market well and spotting cycles early. Berkeley called the top in London property some time ago and is now starting to invest in “the next wave of regeneration sites”.

Profits are expected to fall in 2019/20. But the firm’s clear guidance on profits means that this news should already be factored into the share price.

The group reported net cash of £859.7m at the end of October and expects to return £280m to shareholders each year until 2025. That’s about 217p per share. Some of this is expected to be used for share buybacks, with the rest spent on dividends.

Analysts expect Berkeley to pay a dividend of 203p per share for the current year, giving a forecast yield of 5.5%. For investors with a long-term view, I’d rate Berkeley as a good way to profit from London housing.

The post Buy-to-let is dying. I’d buy these FTSE 100 property stocks appeared first on The Twelfth Magpie.

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• How much do you need in an ISA to earn £19,999 a year on top of the State Pension
• How much is needed in FTSE 100 stocks to make £1,547 in monthly second income?

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Landsec. 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.

By contrast, there are a number of FTSE 100 property stocks that could deliver high returns. Among them are housebuilders, as well as real estate investment trusts (REIT). Both categories of stocks could deliver high returns on low valuations.

Housebuilders

Housebuilders have continued to enjoy strong operating conditions in recent months. Demand for new homes has remained high – even though consumer confidence is low due to the uncertainty caused by Brexit. Although interest rate rises are expected over the medium term, the Bank of England retains a cautious stance on how quickly they will rise. This could provide continued strong operating conditions across the housebuilding sector over the coming years.

Despite their rising levels of profitability, FTSE 100 housebuilders such as Persimmon and Taylor Wimpey continue to trade on low valuations. For example, they both have price-to-earnings (P/E) ratios of 8 and yet are forecast to post positive net profit growth in the current year.

Certainly, there will be an uncertain period for housebuilders following the end of the government’s Help to Buy scheme. It has provided heightened demand for new homes, and has boosted profitability across the sector. But with it due to run until 2023, there could be continued high returns available for investors over the medium term.

REITs

Given the uncertain outlook for the UK economy at the present time, it is perhaps unsurprising that commercial property prices have come under pressure. While this trend may continue over the coming months, in the long run it could present an opportunity for long-term investors to capitalise on what may prove to be wide margins of safety.

FTSE 100 REITs such as British Land and Landsec could be obvious opportunities for investors to take advantage of low valuations in the commercial property sector. They trade on price-to-book (P/B) ratios of just 0.6 and 0.7 respectively, which suggests that they could deliver impressive returns in the long run.

Allied to this are dividend yields that stand at over 5% apiece. The two companies’ yields may in fact be higher than the yields that are available on buy-to-let properties following the rise in residential property prices in recent years. That’s especially the case when costs such as management fees and mortgage payments are deducted.

As such, from a value and income investing perspective, FTSE 100 REITs could deliver higher returns, as well as lower risks, than undertaking a buy-to-let. Alongside housebuilders, there are a range of opportunities within the FTSE 100 for investors seeking to invest in UK property.

The post Forget buy-to-let! Here’s how I’d aim to make a million from FTSE 100 property stocks appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of British Land Co, Landsec, Persimmon, and Taylor Wimpey. The Motley Fool UK has recommended British Land Co and Landsec. 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.

I also want to consider another FTSE 100 property firm whose rapid growth has made it the UK’s largest Real Estate Investment Trust (REIT).

Are we near the top?

Warehouse property specialist Segro (LSE: SGRO) has played a blinder by focusing on providing the large logistics properties needed by fast-growing online retailers. Segro’s share price has doubled in the last five years, during a period when many listed property stocks have flatlined, or fallen.

However, trees don’t grow to the sky. This booming market must slow at some point. News from Segro this week suggests to me that this time is approaching. The value of new leases signed during the first quarter was £21.2m, 22% lower than during the same period last year.

Although chief executive David Sleath says that although political risks are a concern, he’s confident of continued growth. But after raising £451m from shareholders to fund new opportunities in February, he’s decided to spend about £270m repaying some of the firm’s debt a year early.

The firm may simply be planning to refinance this debt at lower cost. But it may also be a proactive move by Sleath to reduce Segro’s gearing, ahead of a possible slowdown in growth.

I don’t like the price

In either case, Segro shares currently trade at a premium to their book value of 650p per share, and offer a dividend yield of just 2.9%. In my view, this isn’t an attractive entry point for a long-term property investment. I think the shares look fully-priced and could be heading for a retreat. I’d prefer to invest in a company that’s currently out of favour, despite having high-quality assets and a generous dividend yield.

A rare opportunity?

One of my top picks in the property sector is Landsec (LSE: LAND), the FTSE 100 REIT previously known as Land Securities. This group owns a large portfolio of prime London office space, along with major shopping centres and retail parks across the UK.

Although retail is out of favour at the moment and rents are falling, Landsec’s centres are major destinations with a good mix of tenants. The firm also has a growing number of leisure tenants, such as bowling alleys and cinemas. Demand remains strong for such activities.

Landsec’s share price has fallen by more than 30% from the highs seen in 2015, leaving the stock trading at a 34% discount to its book value.

It’s worth remembering that although Landsec did cut its dividend during the financial crisis, the firm maintained a payout. It also has an unbroken record of dividends stretching back to at least 1992, the earliest date for which I could find records.

In my view, this dividend stalwart is hard to fault. At about 910p, Landsec shares offer a forecast dividend yield of 5.1%. To me, this contrarian buy looks a much better option than chasing the tail end of the warehouse boom.

The post 1 FTSE 100 5% dividend stock I’d buy for my ISA today appeared first on The Twelfth Magpie.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Landsec. 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.

In contrast, the growth opportunity for commercial property shares such as Landsec (LSE: LAND) and British Land (LSE: BLND) seems to be encouraging. Despite this, they trade on low valuations and, with diverse portfolios, they may be better protected from a challenging UK economic outlook than a buy-to-let property.

As such, now could be the right time to avoid buy-to-let and instead buy into the two FTSE 100 REITs.

Diversity

Due to the scale of costs involved in buy-to-let investing, in terms of the size of deposit which is required, few private landlords have a range of properties in their portfolio. In some cases, it may be made up of a handful of properties, or less. As such, there is a lack of diversity – especially since many of those properties are likely to be in the same area. This means that they are more susceptible to local risks which could impact negatively on their rental growth and demand.

In contrast, British Land and Land Securities have huge portfolios which include a variety of office and retail properties. This could help to protect them from the potential risks which the UK economy faces at the present time.

Simplicity

As well as the cost of buying a buy-to-let property, the process of doing so is cumbersome. It takes weeks or even months to purchase a property, which can be a challenging and uncertain time for the buyer. Once purchased, finding tenants can be costly and time-consuming, with void periods often longer than a landlord would like them to be. Maintenance and repairs can be expensive, while there is always the risk that a tenant fails to pay their rent. Managing a buy-to-let property is therefore challenging and at times, extremely stressful.

British Land and Landsec provide investors with the opportunity to gain exposure to the UK commercial property industry with the click of a mouse. Buying and selling their shares is very straightforward, with online share dealing making it a simple task. Liquidity is high for both stocks, which means that if an investor requires their capital in a short space of time, then it can be reached easily. Therefore, the overall experience of owning the two investment trusts could be a lot more pleasant than having a buy-to-let property.

Valuation

While residential property prices are at or near their highest-ever level compared to average incomes, British Land and Landsec trade on relatively low valuations. For example, the two stocks have price-to-book (P/B) ratios of just 0.6 apiece. This suggests that investors are expecting a significant fall in their property valuations, which could move their risk/reward ratios further in an investor’s favour.

The post Why I’d ditch buy-to-let and invest in these FTSE 100 investment trusts instead appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of British Land Co and Landsec. The Motley Fool UK has recommended British Land Co and Landsec. 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.

Today, I want to suggest two stocks that I think should deliver valuable diversification, while providing a reliable, growing income.

Why diversify?

The reality is that most of us can’t afford to sustain big losses when we’re caught out by unexpected events, or make a mistake. At times like this, a diversified portfolio will help to limit our losses and protect the majority of our wealth.

The maths are simple. If you own four stocks with equal position sizes and experience a 40% loss on one stock, the value of your portfolio will fall by 10%.

If you own 15 stocks in equal sizes, a 40% loss will only result in a 2.7% hit to your portfolio.

Pick #1 – growth

My first stock choice is medical technology group Smith & Nephew (LSE: SN). This company’s main business is making joint replacements for knees, hips and shoulders. It also creates products to help with wound management and other injuries.

Smith & Nephew sells its products in more than 100 countries. Although the US accounts for nearly half of all sales, emerging market sales rose by 7% last year and now account for 17% of revenue.

As emerging markets develop, the number of people able to pay for modern healthcare increases. A good example of this is China, where the group reported “double-digit” percentage sales growth in 2018.

This business has several other attractions too, in my view. It’s highly profitable, with an operating profit of nearly 18%. Debt is fairly low and cash generation is good, comfortably supporting the dividend.

The company gained a new chief executive last year who’s working hard to accelerate the group’s growth. Acquisitions are a possibility, as is a takeover bid.

The shares aren’t cheap, and the dividend yield of 2.1% is fairly modest. But I believe this business has a long runway of growth ahead. I’d rate the shares as a long-term buy.

Pick #2 – income

I like to mix dividend growth with high yield stocks in my portfolio. Combined, my hope is that these will provide an attractive, rising income.

One high-yield pick on my radar at the moment is FTSE 100 real estate investment trust (REIT), Landsec (LSE: LAND). Shares in this firm have fallen by 15% over the last two years and are down 33% from their 2015 highs.

Investors are rightly concerned that rental rates will fall as struggling retailers force landlords to choose between lower rents or store closures.

However, Landsec’s retail property is fairly high quality and is diversified by a valuable portfolio of prime London property. Debt is low and the group’s shares trade at a 35% discount to their book value of 1,384p per share.

A lot of bad news is already priced into this stock. With a forecast dividend yield of 5.3%, I think Landsec makes sense as a long-term income holding.

The post Have £3k to invest? Here are 2 FTSE 100 dividend stocks I’d buy today appeared first on The Twelfth Magpie.

More reading

• How much do you need in an ISA to earn £19,999 a year on top of the State Pension
• How much is needed in FTSE 100 stocks to make £1,547 in monthly second income?

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Landsec. 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.

Empty units are a common sight on many high streets, but Landsec’s pitch to investors is that the quality of its prime retail space means retailers will continue to demand space.

So far, the firm seems to have been right. During the first half of this year, the group’s revenue rose by 10.3% to £224m, while pre-tax profit rose by 23% to £42m.

Adjusted earnings rose by 17.9% to 30.3p per share during the six-month period, while the interim dividend will increase by 14.7% to 22.6p per share.

The only performance metric that didn’t rise was the valuation of the group’s properties, which fell by £188m or 1.4%. This reduced the group’s net asset value to 1,385p per share.

The modest fall masked a larger drop in the value of the group’s retail property. The value of Landsec’s retail parks fell by 4.5%, while shopping centres were down 3.2%. Even Central London shops got hit, losing 2.7% of their value.

The only properties that rose in value were the firm’s London office blocks.

Is it too soon to buy?

At pixel time, Landsec shares were trading at about 860p. That means the stock is priced at a 37% discount to book value. When a good quality property stock like this trades at a big discount to book value, it’s often a buying opportunity.

The problem here is that many investors — including me — think that the value of Landsec’s retail property is likely to keep falling. Although the 5.4% dividend yield looks safe enough to me, I don’t see any rush to buy the shares at the moment. I plan to wait a little longer before making a decision.

One stock I’m watching closely

One company that is on my shopping list is FTSE 100 advertising group WPP (LSE: WPP).

The marketing giant’s shares fell by 15% at the end of October after new boss Mark Read issued a downbeat third-quarter trading statement. WPP stock has now fallen by about 35% so far this year, but I’m starting to think that there might be some value on offer.

Ad spending may be shifting online, but there’s still a need for skilled marketers to develop and run ad campaigns. Managing the data that’s used in online marketing is also a complex activity requiring specialist skills.

Although my previous call on this stock was too soon, I remain convinced that there’s a lot of value in the sprawling empire created by Sir Martin Sorrell.

I’m very tempted

Profit forecasts for the current year have been cut by 17% over the last 12 months. Earnings are also expected to edge lower next year. However, I think that much of this bad news is already reflected in WPP’s share price.

The group’s stock now trades on just 7.9 times 2018 forecast earnings, with a dividend yield of 7%. Having crunched the numbers, I think the shares could offer good value. I’d rate WPP as a contrarian buy.

The post The Landsec share price has now fallen by 35%. Time to buy this FTSE 100 5% yielder? appeared first on The Twelfth Magpie.

More reading

• How much do you need in an ISA to earn £19,999 a year on top of the State Pension
• How much is needed in FTSE 100 stocks to make £1,547 in monthly second income?

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Landsec. 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.