Londonmetric News | The Twelfth Magpie

Forget 1.5% from a savings account. I’d buy into FTSE 100 dividend stock Shell’s 6% yield

Peter Stephens — Mon, 19 Nov 2018 11:32:16 +0000

While the popularity of the recently-launched 1.5% Marcus savings account has been high, the reality is that it is possible to obtain a significantly stronger income return from the FTSE 100. The index yields over 4% at the present time, while Shell (LSE: RDSB) has a yield of around 6% following its recent share price fall.

Looking ahead, the company could deliver an improving dividend. However, it’s not the only income stock that could be worth a closer look. Releasing news on Monday was a high-yielding share which could post impressive income returns in the long run.

Growth potential

The company in question is real estate investment trust (REIT) LondonMetric Property (LSE: LMP). It released news of the sale of its retail park in Martlesham Heath for £22m. This reflects a net initial yield of 5.2%, with the 48,000 sq ft retail park having been acquired in 2013 for £10.4m. The company has been able to attract new retailers since then, with it being fully let at average rents of £25.70 per sq ft. The weighted average lease term is 12 years to expiry and 10 years to first break.

The property has generated a profit on cost of 40% and an un-geared return of 13% per year. The sale reflects a premium to the March 2018 book value.

With a dividend yield of around 4.5%, LondonMetric property appears to offer a sound income outlook. It is due to report a rise in earnings of around 4% per annum over the next two years, and this could lead to increasing dividends. While the prospects for the property industry may be somewhat uncertain, in the long run the business could offer good value for money and growth potential.

Improving outlook

Although the recent performance of the oil price has caused Shell’s share price to decline, this means that the stock now has a dividend yield of almost 6%. Uncertainty surrounding the world economy’s outlook could continue to weigh on the price of black gold, although the company seems to be in a good position due to its plans to rationalise its asset base and use improving free cash flow to reduce leverage. Both of these strategies could lead to a stronger business which is better able to cope with volatile oil prices.

With Shell forecast to post a rise in earnings of 19% next year, its dividend could rise over the medium term. The company’s shareholder payouts are expected to be covered 1.7 times by profit next year, which indicates that higher dividends could become increasingly affordable – especially if the oil price fails to decline significantly. While the company may not be the most stable of dividend opportunities due to its reliance on the oil price, in my opinion it could offer high returns in the long run through a rising dividend. This could make it more appealing than the FTSE 100 and a Marcus savings account in the coming years.

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Peter Stephens owns shares of Royal Dutch Shell B. 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.

2 FTSE 250 stocks I’d sell in June

G A Chester — Wed, 30 May 2018 12:17:08 +0000

Shares of LondonMetric Property(LSE: LMP) have been hitting new all-time highs this month. The company, which released its annual results this morning, was formed by the merger of Metric and London & Stamford in 2013 and the combined group has provided investors with a five-year annualised total return of 15.2%, compared with 6.8% for the FTSE 100.

The directors are property veterans and the company is focused on “sectors supported by structural changes in shopping habits,” notably the digital revolution. In today’s results, management said retail distribution assets now represent 69% of the portfolio, compared with 21% in 2013.

Unemotional

LondonMetric reported an uplift in EPRA net asset value (NAV) per share of 10.3% on last year to 165.2p. EPRA earnings per share (EPS) increased 3.7% to 8.5p and the board lifted the dividend by 5.3% to 7.9p.

The share price is 192p, so the shares are trading at a 16.2% premium to NAV. Put another way, if you’re investing at the current price, you’re having to pay £1 for every 86p worth of assets. Meanwhile, the price-to-earnings (P/E) ratio is 22.6 and the dividend yield is 4.1%.

I believe LondonMetric’s valuation is too rich. Just as management is unemotional about its property portfolio and sells and recycles the capital if an asset no longer justifies continued ownership, I see now as a good time to sell the company’s shares and recycle the capital into a stock with better value credentials in terms of NAV, P/E and dividend yield.

Contrarian corker?

Jupiter Fund Management(LSE: JUP) has delivered a five-year annualised total return of 11.2% for investors. And this despite a recent share price decline from an all-time high of 631p in the first week of January to around 450p today.

My Foolish colleague Harvey Jones believes this looks like a buying opportunity and fellow Fool Royston Wild is equally enthused by what he reckons could be a contrarian corker. At the current share price, underlying EPS of 34.2p gives a trailing P/E of 13.2, while the running dividend yield is 7.2%, based on a 17.1p ordinary dividend and 15.5p special. On the face of it, the valuation is not unattractive, even with City forecasts of dips in EPS and dividends this year. These raise the P/E to 13.4 and reduce the yield to 6.6%.

Stage of the cycle

Jupiter’s flagship Dynamic and Strategic bond funds have been hugely popular after a 30-year bull run in fixed income and the fund house has also enjoyed the nine-year bull run in equities, driven by the asset-price-inflating policies of governments and central banks.

However, investors drew a net £1.3bn out of the group’s funds in Q1 this year and I fear this is a bad stage in the cycle to be investing in Jupiter. Bull runs don’t last forever and sooner or later the company will likely be hit with brutal EPS and dividend downgrades. On the basis that it could well be sooner rather than later, this is a stock I’d be happy to sell at this time.

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G A Chester 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.

Intu Properties plc & Hammerson plc agree £21bn merger: are these 2 investment trusts next?

Peter Stephens — Wed, 06 Dec 2017 11:59:27 +0000

The real estate investment trust (REIT) sector saw a major merger agreed on Wednesday. Shopping centre operators Intu (LSE: INTU) and Hammerson (LSE: HMSO) will combine to create a significant player in the sector. Together they will have a £21bn portfolio of high-quality retail and leisure destination which stretches across the UK and Europe. Could this be the start of a period of consolidation across the sector?

The right deal?

The merger of the two companies will take place via an all-share transaction. Shareholders in Intu will receive 0.475 New Hammerson shares for each share they currently own. This places a premium of 27.6% on the Intu share price as at close of business on 5 December 2017. This may appear to be a generous deal for the company’s investors – especially given the uncertainty in the UK retail sector at present.

However, it could also be argued that the deal undervalues the company. In fact, the £3.4bn purchase price for Intu is just 67% of its net asset value of £5.05bn. This suggests that there may be significant upside potential ahead for investors in the merged entity if the new strategy is able to gain traction and is welcomed by the stock market.

Clearly, a merger of this scale is set to have significant synergies. Already £2bn of asset disposals are being highlighted by the companies. In addition, cost savings seem likely, while a focus on higher-growth regions such as Ireland and Spain could bring increasing earnings and dividend growth in future. It may also bring additional sources of capital which allow the combined entity to expand its Premium Outlets Platform.

Therefore, the merger seems to be a logical step for the two companies to take, with it having the potential to drive improved operational, financial and share price performance in the long run.

More consolidation?

The REIT sector seems to be somewhat undervalued at the present time. When combined with an uncertain outlook driven by Brexit, this could lead to further consolidation across the sector. Two companies which appear to offer good value for money at present are Big Yellow (LSE: BYG) and Londonmetric (LSE: LMP).

Big Yellow has a price-to-book (P/B) ratio of just 1.5, which appears to be relatively low given its profit growth potential. The company has a dominant position in the UK storage sector and this could help to protect it to some degree from the potential headwinds within the economy.

The company is forecast to grow its bottom line by 8% next year, which suggests that it offers a degree of defensive characteristics. As well as this, a dividend yield of 3.6% which is due to rise to 3.9% next year, indicates that it offers strong income potential. With a sound strategy that has delivered earnings which have risen 3.3 times over the last four years, Big Yellow could be a potential bid target in future.

Low valuation

Similarly, Londonmetric appears to be cheap at the present time. It trades on a P/B ratio of 1.2, which is relatively low given its forecast growth rate of 5% per annum during the next two financial years. The company also has a strong income outlook. It has a dividend yield of 4.5% forecast for the next financial year, which could help its investors to overcome the threat of inflation. And with a strategy that has delivered four years of consecutive earnings growth, it appears to offer stability at a time when the outlook for the wider economy is uncertain.

Clearly, it’s difficult to select which companies could become bid targets. However, Big Yellow Group and Londonmetric both offer impressive investment outlooks and, with such low valuations, they could be attractive to a number of sector peers.

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Peter Stephens owns shares of Big Yellow. 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.

2 high-yielding investment trusts for dividend growth investors

Peter Stephens — Mon, 02 Oct 2017 10:42:30 +0000

With the outlook for the global economy being highly uncertain, dividends could become increasingly important for investors. They may begin to offer a higher proportion of total return, and could even provide defensive prospects due to increased demand for high-yield shares among investors. Furthermore, obtaining a real income return may in itself become more challenging. Inflation has risen to 2.9%, which could make these two high-yielding investment trusts even more enticing.

Improving performance

Reporting on its first-half performance on Monday was primary care property investor and developer, Assura (LSE: AGR). The company continued to make encouraging progress during the period, with the acquisition of 75 medical centres completed for a gross consideration of £154m. They have an aggregate passing rent roll of £7.7m and a weighted average unexpired lease length of 12.7 years.

The company now owns 475 medical centres, with the weighted average annual rent increase being 1.81% based on 88 reviews settled during the first half of the year. It continues to have a strong pipeline of future acquisitions and developments. With strong support across the UK political spectrum for more investments in modern primary care properties, it appears to have a sound growth outlook.

With a dividend yield of 4%, Assura appears to have high income appeal. It is forecast to raise shareholder payouts by 8% next year and has a strong track record of increasing dividends in recent years. In fact, in the last five years they have risen by 125% and this suggests the business may offer a long-term dividend growth rate which is well in excess of inflation. Since the sector in which the company operates also offers a degree of stability and defensive characteristics, the stock could be an attractive buy for the long run.

Growth potential

Also offering an upbeat outlook for income investors is property investment and development company, Londonmetric (LSE: LMP). It has a dividend yield of 4.7% and is due to increase payouts to its shareholders by 3.3% next year. This should keep payments ahead of inflation – especially since the Bank of England is expected to raise rates in the near term. This could cool the recent rises in inflation and make the stock more appealing.

Londonmetric trades on a price-to-book (P/B) ratio of 1.15. This suggests that it offers a wide margin of safety which could help to protect its valuation should the performance of the sector come under pressure.

The company’s focus on distribution could also provide it with a defensive outlook. Around £0.9bn of its £1.5bn asset base is invested in distribution assets. That sector should benefit from a tailwind as consumers gradually shift their shopping habits towards online retail. And since the average lease length of 13 years is one of the longest in the listed real estate sector, the company’s certainty of income remains high. As such, it appears to offer a solid investment case for the long run.

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Peter Stephens 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.