I’m racing to buy dirt cheap income stocks before it’s too late

For investors who love buying income stocks, 2025âs been a pretty good year. Across the first nine months, a total of Â£73.6bn of dividends have been paid out. And according to the latest forecasts, this is expected to reach Â£87.2bn for the full year.

Yet, this could pale in comparison to what’s coming in 2026.

Continued profits from the banking sector, a rebound in mining payouts, and ongoing resilience in defensive sectors like food and tobacco all point towards higher shareholder rewards next year. And this is further supported by increasingly favourable currency exchange rates for large-cap multinationals within the FTSE 100.

In other words, 2026 could be a fantastic year for investors seeking passive income. That’s why I’ve already been busy snapping up dirt cheap dividend stocks.

Here’s what I’m buying

Right now, my focus is on the commercial real estate sector. Higher interest rates have made this segment of the stock market relatively unpopular. Consequently, there’s a wide range of income stocks offering 6%+ yields backed by reliable and recurring cash flows trading at a discount to their net asset value.

What’s more, since many tenancy agreements come with annual uplifts, that doesn’t look like it’s about to change in 2026, especially since interest rates are also expected to fall, reducing the pressure of outstanding debts.

That’s why I’ve been topping up my position in real estate investment rust (REIT) LondonMetric Property (LSE:LMP).

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Investing in Tesco’s landlord

For companies like Tesco, running an online and brick & mortar retail empire requires a network of well-positioned warehouses and stores. And that’s something LondonMetric is an expert in providing.

More than half of its real estate portfolio is focused on prime-positioned logistics centres, with the rest diversified across healthcare facilities, convenience stores, as well as leisure parks.

The average length of its lease agreements spans just over 16 years, with an impressive occupancy level of 98% that has remained stable even during the disruptive pandemic and subsequent cost-of-living crisis.

This stability, paired with steady cash flow expansion, is how the company has delivered almost 11 years of uninterrupted dividend hikes, growing the yield to 6.8%. And even with this remarkable track record, the income stock continues to trade at a roughly 8.5% discount to its net asset value.

Where’s the risk?

From a fundamentals perspective, LondonMetric looks rock solid. But if that’s the case, why aren’t more investors taking advantage?

The biggest culprit appears to be the deteriorating macroeconomic backdrop. The latest RICS UK Commercial Property Monitor report revealed occupier demand has dropped by a steep 21% within retail in the third quarter. And looking at demand for the wider industrial sector, it’s dipped into the red for the first time since 2012.

With demand moving in the wrong direction, LondonMetric could face a significant challenge in renewing some of its soon-to-expire leases. It might have to entice tenants with discounts that could adversely impact dividend affordability.

This concern is why the yield remains high. However, only around 8% of its income stream is at risk of expiration over the next three years, creating a good chunk of wiggle room for economic conditions to improve and demand to recover. That’s why I think it’s a risk worth me taking, especially with a near-7% dividend yield on offer.

The post I’m racing to buy dirt cheap income stocks before it’s too late appeared first on The Motley Fool UK.

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Zaven Boyrazian has positions in LondonMetric Property Plc. The Motley Fool UK has recommended LondonMetric Property Plc and Tesco Plc. 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.