When it comes to passive income investments, I favour stocks in the FTSE 100. I concentrate on blue-chip companies as I believe they are more predictable and financially secure than their smaller peers. These are essential qualities for income investments.
I also like to focus on property companies. Many investors choose this sector when they are looking for passive income. However, due to the high cost of properties in the UK, not all investors can take this approach.
This is where real estate investment trusts (REITs) can come in handy. These companies own portfolios of properties, which they manage on behalf of investors and distribute rental income via dividends. As such, I think they are a great passive income option for investors who cannot afford to buy a property portfolio themselves.
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FTSE 100 passive income
One of the largest REITs on the London market is Landsec (LSE: LAND). This group owns a portfolio of commercial properties across the UK. A large percentage of the portfolio is concentrated in London, where the organisation owns landmark assets such as the Piccadilly Circus lights.
Unfortunately, even the company’s high-quality property portfolio has not been able to save it for the turbulence of the past two years. The coronavirus pandemic has caused a significant amount of pain for landlords and tenants alike. Commercial property values have collapsed in some regions.
The market is beginning to rebound, especially in highly sought after locations. According to its latest rent collection update, Landsec collected 89% of rents outstanding for the quarter ended 29 September, up from 81% for the June quarter.
Companies have to distribute 90% of their rental income to investors as dividends to qualify as a REIT. As such, investors are set to benefit from Landsec’s higher rent collection levels through higher dividends.
City analysts reckon the firm’s dividend will rise to 33p for the 2022 fiscal year, up 51% from 2021’s figure. That would leave the stock yielding 4.8%.
Value acquisition
Of course, there is no guarantee the group will hit this projection. Further coronavirus restrictions could cause rent collection volumes to decline again. Higher interest rates will also increase the cost of the company’s debt, reducing the amount of money it can return to investors.
And thanks to the e-commerce revolution, the outlook for commercial property values is incredibly uncertain.
Still, Landsec is making concerted efforts to diversify its portfolio. As well as increasing investment in office properties, and flexible working spaces, today, the organisation has announced the acquisition of urban regeneration specialist U+I group.
U+I provides access to a significant pipeline of mixed-use development schemes across the country, further diversifying Landsec’s portfolio. What’s more, the group is paying 149p per share in cash for the business. Its last-reported net asset value was 163p. These figures imply the more prominent developer has achieved quite a good deal.
Therefore, considering Landsec’s diversification, income potential and high-quality property holdings, I would buy the FTSE 100 stock as a passive income investment for my portfolio.
