Why these FTSE 100 dividend stocks could pay you for the rest of your life

Roland Head asks if these FTSE 100 (INDEXFTSE:UKX) stocks can provide a lifetime income.

| 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.

Stocks which pay unbroken dividends for decades are relatively rare. But one sector which is capable of providing a reliable income over long periods is commercial property.

Long leases mean that rent payments are generally visible for many years ahead. The main risk is that over-expansion during boom markets can lead to debt-fuelled losses during downturns.

Today I’m looking at two property stocks that continued to pay dividends throughout the financial crisis, albeit at a reduced level. Is either of these firms a potential lifetime income buy today?

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

Big boxes are in demand

Since restructuring in the wake of the financial crisis, FTSE 100 firm Segro (LSE: SGRO) has focused on building and owning big box distribution centres in the UK and Europe.

It’s a strategy that’s worked very well, enabling the firm to avoid the troubled retail sector and profit from the growth of internet shopping.

In its first-quarter trading update today, chief executive David Sleath reported “a strong start to 2018”. Mr Sleath said that the group contracted £27.3m of new rent during the quarter, compared to £16.3m during the same period last year.

Of this, £23.3m, or 85%, came from pre-lets on buildings that aren’t yet complete. That’s an increase from 65% a year ago. This highlights the strength of demand for logistics properties at the moment, but I wonder if it’s also a sign that this market could be getting a bit peaky.

Numbers are still good

The risk for investors is that Segro stock now trades at a 13% premium to its last-reported net asset value of 556p per share. This normally only happens to property stocks during a bull market, when investors are confident that asset values will keep rising.

Any sign that the market is flattening out could trigger a sharp fall in the group’s shares.

However, there’s no sign of this yet and the group’s financials still seem fairly attractive. Today’s update confirms that net debt remained flat at £2.4bn in Q1, giving an unchanged loan-to-value ratio of 30%.

Segro’s dividend yield has now fallen to below 3%, which is too low for me. But this could still be a good long-term income buy.

This 5% yield looks cheap

Real estate companies specialising in retail property have seen their shares falling steadily over the last year. Rising levels of financial distress among retailers mean that an increasing number of landlords are being asked to accept rent reductions, or face the risk of empty units.

This problem was highlighted by FTSE 100 retail landlord Hammerson (LSE: HMSO) today, when the board withdrew its recommendation for a planned takeover of rival Intu Properties. The firm’s comments seem to suggest that major shareholders may have opposed the deal.

A buying opportunity?

Weak market sentiment in recent months has left Hammerson stock trading at a 35% discount to its net asset value of 790p. The firm’s board now plans to tighten its focus on high-growth premium properties in the UK and abroad. It will also review planned projects to make sure they still offer suitable levels of return.

The stock’s discount to book value means that its dividend yield has risen to a generous 5.4%.

I think there’s a risk that it’s still too soon to buy, but I would be happy to consider a starter position at this level.

British CEO gobbles up £238,000 of own stock

What company does he run?

And why is he so confident in its long-term potential?

This new report - ‘One Top Growth Stock from The Motley Fool’ - reveals the full details, both risks and opportunities. Some of which you may find frankly, unbelievable.

Though past performance does not guarantee future results, over the past 5 years, it’s seen consistent:

  • Double-digit revenue growth
  • Returns on capital almost 600% the UK average
  • Now, profits are exploding again - up 46% in 1 year!

It’s no wonder insiders are buying this stock hand over fist. Last year, they bought a total £492,000 of shares. And now might be the ideal moment to join them.

So please, don’t miss this report, ‘One Top Growth Stock from The Motley Fool’ Including both risks and opportunities.

Secure your FREE copy now

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 has no position in any of the 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.

More on Investing Articles

Close-up of British bank notes
Investing Articles

£20,000 in savings? Here’s how it could be used to target a £913 second income each month

Christopher Ruane walks through some practicalities of how an idle £20k could be the foundation for a sizeable long-term second…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

5 steps to building monthly passive income with a spare £10k

Christopher explains how an investor could aim to use some spare cash to start building regular passive income streams through…

Read more »

Blue NIO sports car in Oslo showroom
Investing Articles

Tesla’s struggling. Could NIO stock benefit?

NIO stock has moved up very slightly this year, while Tesla has crashed. Our writer considers whether it might be…

Read more »

Two employees sat at desk welcoming customer to a Tesla car showroom
Investing Articles

Could Tesla stock be a brilliant bargain in plain sight?

Christopher Ruane sees some things to like about Tesla, but as its vehicle revenues have gone into sharp decline, is…

Read more »

British coins and bank notes scattered on a surface
Investing Articles

3 cheap FTSE 250 stocks with big dividends to consider buying right now

The FTSE 250's loaded with so many big dividend yields it's hard to know where to start. These three have…

Read more »

Rolls-Royce's Pearl 10X engine series
Investing Articles

Up 585%, could Rolls-Royce shares still go higher?

Christopher Ruane likes the Rolls-Royce business but is not so convinced by the value its current share price offers him.…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

I reckon a bull market’s coming! Here’s what I’m buying for my Stocks and Shares ISA

Hoping to capitalise on what he believes is an undervalued UK stock market, our writer’s added more of this FTSE…

Read more »

piggy bank, searching with binoculars
Investing Articles

The UK stock market looks undervalued to me. Here’s 1 growth stock to consider for a SIPP

Our writer explains why he thinks the UK stock market’s currently in bargain territory, and identifies one share potentially worthy…

Read more »