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1 FTSE 100 5% dividend stock I’d buy for my ISA today

Roland Head
Various denominations of notes in a pile

What would you say to a hassle-free 5% income, plus the potential for long-term capital gains? Today, I want to look at a FTSE 100 property stock which I believe offers exactly these benefits to buyers.

I also want to consider another FTSE 100 property firm whose rapid growth has made it the UK’s largest Real Estate Investment Trust (REIT).

Are we near the top?

Warehouse property specialist Segro (LSE: SGRO) has played a blinder by focusing on providing the large logistics properties needed by fast-growing online retailers. Segro’s share price has doubled in the last five years, during a period when many listed property stocks have flatlined, or fallen.

However, trees don’t grow to the sky. This booming market must slow at some point. News from Segro this week suggests to me that this time is approaching. The value of new leases signed during the first quarter was £21.2m, 22% lower than during the same period last year.

Although chief executive David Sleath says that although political risks are a concern, he’s confident of continued growth. But after raising £451m from shareholders to fund new opportunities in February, he’s decided to spend about £270m repaying some of the firm’s debt a year early.

The firm may simply be planning to refinance this debt at lower cost. But it may also be a proactive move by Sleath to reduce Segro’s gearing, ahead of a possible slowdown in growth.

I don’t like the price

In either case, Segro shares currently trade at a premium to their book value of 650p per share, and offer a dividend yield of just 2.9%. In my view, this isn’t an attractive entry point for a long-term property investment. I think the shares look fully-priced and could be heading for a retreat. I’d prefer to invest in a company that’s currently out of favour, despite having high-quality assets and a generous dividend yield.

A rare opportunity?

One of my top picks in the property sector is Landsec (LSE: LAND), the FTSE 100 REIT previously known as Land Securities. This group owns a large portfolio of prime London office space, along with major shopping centres and retail parks across the UK.

Although retail is out of favour at the moment and rents are falling, Landsec’s centres are major destinations with a good mix of tenants. The firm also has a growing number of leisure tenants, such as bowling alleys and cinemas. Demand remains strong for such activities.

Landsec’s share price has fallen by more than 30% from the highs seen in 2015, leaving the stock trading at a 34% discount to its book value.

It’s worth remembering that although Landsec did cut its dividend during the financial crisis, the firm maintained a payout. It also has an unbroken record of dividends stretching back to at least 1992, the earliest date for which I could find records.

In my view, this dividend stalwart is hard to fault. At about 910p, Landsec shares offer a forecast dividend yield of 5.1%. To me, this contrarian buy looks a much better option than chasing the tail end of the warehouse boom.

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Roland Head 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.

Motley Fool UK 2019