Forget buy-to-let! I’d generate a passive income from this FTSE 100 property stock

A London focus could make this FTSE 100 (INDEXFTSE: UKX) dividend stock a great income buy, says Roland Head.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I recently paid for some repairs to the roof of my house. The work was unavoidable but I estimate that if the house was rented, it would have cost me four or five months’ rent.

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.

Should you invest £1,000 in Land Securities Group Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Land Securities Group Plc made the list?

See the 6 stocks

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.

But there may be an even bigger investment opportunity that’s caught my eye:

Investing in AI: 3 Stocks with Huge Potential!

🤖 Are you fascinated by the potential of AI? 🤖

Imagine investing in cutting-edge technology just once, then watching as it evolves and grows, transforming industries and potentially even yielding substantial returns.

If the idea of being part of the AI revolution excites you, along with the prospect of significant potential gains on your initial investment…

Then you won't want to miss this special report inside Motley Fool Share Advisor – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And today, we're giving you exclusive access to ONE of these top AI stock picks, absolutely free!

Get your free AI stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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.

More on Investing Articles

Investing Articles

3 high-yield dividend shares to consider buying for a retirement portfolio

Dividend shares can provide retirees with regular passive income in their golden years. Our writer picks out three with yields…

Read more »

Investing Articles

Tesla stock has halved. Could it now double – or halve again?

After a wild few months for Tesla stock, Christopher Ruane weighs some pros and cons of the investment case. Could…

Read more »

Investing Articles

Does it make sense to start buying shares as the stock market wobbles?

Does a rocky stock market make for a good or bad time to start buying shares? This writer reckons it…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

£15k of passive income a year? It’s possible with the right dividend strategy!

To figure out how much dividends are needed for a lucrative passive income stream, investors must understand which strategies get…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

As US markets wobble, I’m listening to Warren Buffett!

The long career of billionaire investor Warren Buffett has included plenty of market turbulence. Here's what our writer's learnt from…

Read more »

UK money in a Jar on a background
Investing Articles

5 shares yielding over 5% to consider for a SIPP

Christopher Ruane introduces a handful of FTSE 100 and FTSE 250 shares he thinks an income-focussed SIPP investor should consider.

Read more »

Investing Articles

Here’s how an investor could invest a £20k ISA to target £1,500 of passive income per year

Can a £20,000 ISA throw off close to £30 per week on average of passive income when invested in blue-chip…

Read more »

Investing Articles

As gold hits $3,000, this FTSE 100 stock is primed for blast off

As Western institutions scramble to get as much gold as they can lay their hands on, Andrew Mackie believes this…

Read more »