Those landlords are abandoning the market for good reason, and I wouldn’t want to get into buy-to-let property today because it’s becoming harder to turn a profit from the activity. Instead, I’d rather invest in the shares of property-owning companies listed on the stock market, such as London-focused McKay Securities (LSE: MCKS), which trades as a Real Estate Investment Trust (REIT).

Tax-efficient returns

I like REITs because they save shareholders from paying too much tax. Shareholders are often taxed twice on the profits of non-REIT property companies because first the firm pays corporation tax on income and capital gains and then shareholders often pay tax on the dividends they receive. REITs, on the other hand, enjoy a special tax status, which exempts them from paying corporation tax on the profits of their rental businesses as long as they comply with certain conditions, such as paying out 90% of their property income to shareholders each year, and not engaging in non-property business activities.

When shareholders receive their dividends from a REIT, the tax man treats the income as if it is income from property. So holding shares in a REIT company strikes me as being similar to holding buy-to-let property but without all the hassle that comes with running your own property business. You also get instant diversification across the many underlying property assets that the REIT company owns if you buy some of the shares. I can’t get that kind of spread from buy-to-let because I don’t have enough capital to invest in multiple properties on my own. 

Investing in an attractive geography

McKay Securities specialises in the London and South East office, industrial and warehouse markets, which I think is an attractive area in which to invest. I’m encouraged by today’s full-year report from the firm. In terms of the adjusted figures, gross rental income rose 6.6% on a like-for-like basis compared to the year before, which pushed up earnings per share by 2.1%. The net asset value improved by 1.2% to 326p per share and the directors pushed up the full-year dividend by 2.8%.

Chief executive Simon Perkins explained the directors are “wary” of the current political uncertainty but believe the strong fundamentals in the market and the value in the company’s portfolio of investments positions McKay well for future growth. Rental and capital uplifts in the period outperformed the market, which Perkins puts down to the way the company manages its portfolio.

The current share price close to 248p puts the dividend yield just above 4.1% with the company trading at around 0.75 times net asset value. I think the valuation looks attractive.

The post Forget buy-to-let! I’d buy shares in this London-focused REIT appeared first on The Twelfth Magpie.

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Kevin Godbold has no position in any share 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.

Although the property market is cyclical, well-run property firms can provide a reliable long-term income. Both of the trusts I’m looking at here continued paying dividends throughout the financial crisis, albeit at a reduced level.

An overlooked dividend champion?

Commercial property group McKay Securities (LSE: MCKS) is a name you may not be familiar with. This £250m investment trust specialises in office and industrial property in London and the south east of England.

McKay’s share price rose by nearly 3% in early trade today, after the group said its adjusted pre-tax profit rose by 5.4% to £9.07m last year. Gross rental income climbed 5.1% to a new record of £21.84m, and the trust’s net asset value per share rose by 6.3% to 322p. This means that at the last-seen share price of 278p, the shares trade at a tempting 15% discount to their net asset value.

Dividend growth was also ahead of expectations. The full-year dividend has been lifted 11% to 10p, ahead of broker forecasts for a payout of 9.2p per share.

Why I’d buy

This company isn’t involved in the retail sector, where landlords are starting to see downward pressure on rents.

Demand for office and industrial property such as warehouses still appears to be strong. The trust reported a “record year of lettings”, with a 23.3% increase in contractual rental income on a like-for-like basis. Debt levels are also reasonably conservative, with a loan-to-value ratio of 31.9%.

The current market strength probably won’t last forever. But this looks to me like a well-run business at a reasonable valuation. The shares’ 15% discount to book value is paired with a dividend yield of 3.6%.  I’d consider buying at these levels.

The best long-term income stock?

If you’re building a retirement portfolio, you might prefer to focus on stocks from the larger end of the market. One of the UK’s largest and oldest real estate investment trusts is FTSE 100 member British Land Company (LSE: BLND).

This £6.8bn group operates a mix of office and retail property, much of which is in prime locations in London and at major retail sites around the UK. Last week’s full-year results suggest that despite the problems being experienced by some major retailers, the group’s properties are holding their value so far. Property values rose by an average of 2.2%, while a £300m share buyback helped lift net asset value per share by 5.7% to 967p.

Underlying profit fell by 2.6% to £380m during the year to 31 March, as property sales put a dent in the group’s rental income. But the dividend rose by 3%, giving the stock a tempting yield of 4.3%. And the last-seen share price of 690p means that the stock trades at a discount of nearly 30% to its book value.

A buy for income?

I think that the pressure on retailers and retail landlords could continue for some time. But the group looks well positioned to handle this. Nearly 40% of its rental income comes from offices, and its retail sites are generally major shopping centres such as Meadowhall and Ealing Broadway.

The stock offers a forecast yield of 4.5% for the current year, and trades at an attractive discount to book value. I’d rate British Land as a long-term income buy.

The post 2 top investment trusts that could help you retire 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 British Land Co. 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.

With that in mind, here are two real estate investment trusts (REITs) that could offer high income returns. They also appear to offer excellent value for money, which means that their total returns could be equally impressive.

Positive update

Reporting on Friday was London and South East office and industrial market specialist McKay Securities (LSE: MCKS). Its trading update showed that it has been able to make good letting progress, with it experiencing a relatively resilient level of demand. This looks set to continue over the near term, with the company having ambitious growth plans that could help to improve its overall financial performance in future.

With a dividend yield of 3.9%, the stock appears to have strong income potential. Dividend growth could also be relatively impressive, with its bottom line due to rise by 7% in the current financial year. Following that, its earnings per share are expected to be 17% higher in 2020 than they are due to be in the 2018 financial year. As such, dividend growth could easily surpass the rate of inflation over the next couple of years.

While the prospects for the London and South East property market remain uncertain due to Brexit, McKay Securities appears to offer a wide margin of safety. It has a price-to-book (P/B) ratio of just 0.8, which suggests that it may be significantly undervalued at the present time. As such, its total return potential seems to be high.

Consistent performance

Also offering an impressive income outlook within the REIT sector is British Land (LSE: BLND). The company has a solid track record of earnings growth, with its bottom line rising in each of the last three years. This has enabled its dividend growth rate to beat inflation during the period, with the stock now having a dividend yield of 4.9%. This is likely to remain above inflation even if the outlook for the UK economy becomes increasingly uncertain.

With British Land having significant exposure to London, it may experience a difficult period as Brexit talks continue. Demand for property in the area may come under pressure – especially if talks between the UK and the EU do not progress smoothly. However, with a number of prime properties in its portfolio, it appears to have a solid growth outlook for the long run.

Since British Land has a P/B ratio of 0.65, it appears to have a significant amount of upside potential. In fact, investors may have already priced in possible risks associated with Brexit. As such, it could provide capital growth potential as well as offering one of the higher yields in the FTSE 100 at the present time.

The post Hungry for dividends? Consider these high-yielding investment trusts appeared first on The Twelfth Magpie.

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Peter Stephens owns shares in British Land. The Motley Fool UK has recommended British Land Co. 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.

There are some signs that now, after years of explosive growth, the market is starting to soften, but this does not appear to be impacting McKay Securities (LSE: MCKS). 

Steady income growth 

Today the firm reported its results for the six months ended 30 September and the results were broadly positive. Net rental income grew 8.2% year-on-year, while adjusted profit before tax rose 6% to £4.7m. The group’s net asset value, a more accurate representation of value creation for real estate investment trusts like McKay, ticked higher by 3% to 312p from 303p at the end of March 2017. 

Off the back of these robust figures, management announced a 3.7% increase in the company’s dividend payout. 

Based on these half-year figures, it looks as if the company is on track to outperform City expectations for the full-year. 

Indeed, in the run-up to today’s release, analysts have been expecting a pre-tax profit of £8.7m for the full year, and dividend growth of just over 1%. It now looks to me as if the firm is set to earn £9.4m for the year with an inflation-busting dividend increase of 3.7%. 

Active in one of the most buoyant property markets in the world, I believe that McKay is a great buy for income seekers. The real estate investment trust offers a relatively defensive income from property, and the asset value is supported by bricks and mortar. 

What’s more, it looks as if the shares are deeply undervalued at current levels. At 233p, shares in McKay are trading at price-to-book ratio of 0.75, implying an upside of 33% if sentiment towards the business improves and the shares re-rate. As well as this discount, the shares support a dividend yield of 4%. 

Undervalued growth and income 

Another dividend stock that looks to me as if it could help you make a million with little risk is Workspace (LSE: WKP). 

The company, which “offers highly designed and super-connected space to businesses on flexible terms” recently reported a 21% year-on-year growth in net rental income for the first half thanks to high demand from customers for its properties. Net asset value for the six months to 30 September rose by 6.4% to £10.14 so, once again, at 930p the stock is trading at a price to book value of less than one. 

Workspace offers the rare combination of both growth and income that’s backed by property. The shares currently support a dividend yield of 2.8%, and City analysts have pencilled in earnings per share growth for the group of 16% this year followed by growth of 12% for the financial year ending 31 March 2019. 

Over the past five years, the company’s earnings per share have grown three-fold. Over the same period, the dividend payout has risen 170%. 

With a steadily growing dividend distribution, rising earnings and a property-rich balance sheet, Workspace looks to me to be another top ‘safe’ dividend stock. 

The post 2 ‘safe’ dividend bargains that could help you retire a millionaire appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share 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.

Improving performance

Real Estate Investment Trust (REIT) McKay Securities (LSE: MCKS) reported improving profit for the full year on Monday. Its adjusted profit before tax increased by 8.3%, with gross rental income up 3.1% to a historic high. It also recorded an increase in its property portfolio value of 7.2%, which generated a 1.7% valuation surplus. The company also made good progress with its contracted rental income, which moved 11% higher.

With the company focused on London and the south east, its outlook is somewhat challenging. In the current financial year it is forecast to report a rise in its bottom line of just 3%, followed by further growth of only 4% next year. Despite this low growth rate, the company’s dividend is expected to increase by around 2.2%. This puts it on a forward yield of around 4%, which should keep its shares popular among income investors as inflation moves higher.

While its outlook is relatively uncertain, McKay Securities offers a wide margin of safety. For example, it trades on a price-to-book (P/B) ratio of only 0.8. This suggests that while there is scope for property valuations and rental income in the UK to come under pressure, McKay Securities’ share price could offer a sound risk/reward ratio over the long run.

Low valuation

Also offering upside potential is property investment and development company Town Centre Securities (LSE: TOWN). Unlike McKay Securities, it is forecast to post a rise in its bottom line which is well ahead of the wider index. Its earnings are due to rise by 13% in the current year, and by an additional 11% next year. When combined with a relatively low rating, this equates to a price-to-earnings growth (PEG) ratio of only 1.6.

As well as offering growth at a reasonable price, Town Centre Securities appears to have income appeal. It has a dividend yield of 4%, and with dividends due to rise by almost 5% next year, its income return should stay ahead of inflation. Beyond 2018, further scope for dividend growth is on the cards, since it has a dividend coverage ratio of 1.2. This is relatively healthy for the property investment sector and indicates that sufficient capital is available for reinvestment.

The last five years have been a prosperous period for Town Centre Securities, as evidenced by a share price which is up 82% during the period. With a low valuation, growth potential and an attractive income outlook, more growth could be ahead.

The post 2 exciting dividend stocks with massive potential appeared first on The Twelfth Magpie.

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• How much is needed in an ISA to unlock £1,220 of passive income a year?
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Peter Stephens has no position in any 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.