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Forget buy-to-let! I’d buy these 2 FTSE 100 stocks today to generate a passive income

Peter Stephens
One pound coin

Investing in buy-to-let properties has been a popular means of generating a passive income for many years. While some investors have been successful in their aim, tax changes and high house prices mean that there may be a better means of obtaining a rising income from the property sector.

With many FTSE 100 property companies currently trading on low valuations and offering high yields, buying a range of them within a portfolio could generate high long-term returns. Here are two prime examples of stocks that could be worth purchasing today.

Persimmon

Recent updates from housebuilder Persimmon (LSE: PSN) have highlighted the changes being made to its business model. It is now investing larger sums of capital into ensuring its customers are satisfied with their purchases. This has included delaying completions, which has had a negative impact on the company’s short-term profitability.

However, this move could prove to be a sound one in the long run. An improving customer satisfaction rate may help Persimmon to gain a stronger reputation that leads to a more sustainable financial outlook.

The company’s shares continue to trade on a low valuation despite a recent uplift for the wider housebuilding sector following the election. The stock has a price-to-earnings (P/E) ratio of just 9.9, while its dividend yield of 8.8% suggests that its total return prospects could be high.

With high demand for new homes likely to continue due to a supply shortage and a loose monetary policy, now could be the right time to buy housebuilders such as Persimmon. The company’s strategy could strengthen its position and deliver a growing and sustainable passive income for its investors.

Landsec

Another FTSE 100 property company that could offer a growing passive income is Landsec (LSE: LAND). The real estate investment trust (REIT) has reported continued challenges in the retail sector, but this has largely been offset by continued high demand for office space in London.

The company has become increasingly innovative in terms of the products it offers to customers. For example, it now has a greater range of flexible office products through its Myo and Fitted brands. They are proving popular, according to its most recent update, and suggest that the company is adapting to changing demands within the office rental marketplace.

Landsec currently trades at a significant discount to its net asset value, with its price-to-book (P/B) ratio being 0.7. Alongside a dividend yield of 4.8%, this indicates that the company’s shares offer good value for money due to them having a wide margin of safety versus other FTSE 100 stocks.

As such, now could be the right time to buy a slice of the business as Brexit uncertainty continues to weigh on its valuation and the long-term prospects for the UK commercial property market look set to improve.

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Peter Stephens owns shares of Landsec and Persimmon. 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 2020