5% dividend yields! Should I buy this FTSE 100 dividend share?

Scene depicting the City of London, home of the FTSE 100

Retail-exposed UK shares like Land Securities Group (LSE: LAND) took a pasting last year as Covid-19 caused the mass closure of non-essential stores. Profits sunk at retail property owners like this and balance sheets came under extreme stress.

But after dividends were canned two Aprils ago, things are slowly improving at this FTSE 100 share. And City analysts expect annual dividends here to soar.

Property stocks like this have long been a favourite with dividend investors, thanks to their reliable income generation. But can this still be considered one of the best income stocks to buy as online shopping takes over?

A report just released by the Local Data Company reveals the extent of the strain on physical retail. A whopping 8,700 chain stores closed their doors for the last time in the first half of 2021, it said. This created a net decline of 5,251 stores. The drop reflects Covid-19 lockdowns earlier in the year as well as the growing problem of e-commerce for bricks-and-mortar retailers.

A FTSE 100 stock in recovery?

Even though rent collections at the FTSE 100 firm have improved of late, this naturally casts a shadow over Land Securities and its peers. Still, some would argue that the danger of internet shopping is currently baked into the company’s rock-bottom valuation. The business trades on a forward price-to-earnings growth (PEG) ratio of 0.8. Any value below 1 could suggest a UK share is undervalued, based on its predicted growth trajectory.

Speaking of which, City analysts expect earnings at Land Securities to rise 21% in the financial year to March 2022. An additional 13% increase is predicted for fiscal 2023 too. The number-crunchers believe an end to Covid-19 lockdowns and the steady return of people to the workplace will help profits at the company recover. Indeed, that Local Data Company report shows that the pace of closures has slowed in recent months.

5% dividend yields

Land Securities is a real estate investment trust, meaning it has to distribute 90% of profits by way of dividends. Therefore, these bright earnings forecasts translate into predictions of handsome dividend growth. Last year’s annual payout of 27p per share is tipped to rise to 32.5p and 36p this year and next respectively. These estimates create chunky yields of 4.4% and 5% respectively.

I’m afraid however, I still have grave concerns about buying Land Securities stock. It’s not just the e-commerce surge that continues to drive physical retailers to the wall in vast numbers. As analysts at Jefferies recently noted, the FTSE 100 business also has to spend a fortune to upgrade its property portfolio to meet environmental standards. And in the near term, the resurgence in Covid-19 cases threatens to blow profits and dividend forecasts wildly off course as it raises the spectre of more retail lockdowns.

Land Securities’ share price looks cheap. But it’s cheap because of its extremely high-risk profile. I’d rather buy other blue-chip shares today.

The post 5% dividend yields! Should I buy this FTSE 100 dividend share? appeared first on The Motley Fool UK.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

More reading

Royston Wild 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.

Leave a Reply

Your email address will not be published.