While undertaking a buy-to-let investment in the past has delivered a high and rising income return, in the coming years there may be less opportunity to achieve this. Increased taxes on landlords and stricter regulations on mortgage borrowing could combine to make investing directly in property less attractive.
By contrast, a number of FTSE 100 dividend stocks appear to offer impressive risk/reward ratios for the long term. In fact, within the property sector itself, there appear to be a number of potential bargains that could yield high income returns and capital growth, while also offering tax advantages when invested in through a Stocks and Shares ISA.
British Land The recent pullback in the British Land (LSE: BLND) share price means that the real estate investment trust (REIT) has a dividend yield of around 6%. This suggests that investors are factoring in potential risks across the commercial property sector.
While this may be warranted as a result of the pressure that exists on retailers in particular, British Land is seeking to pivot towards office space and residential units over the medium term. This could reduce its reliance on retailers, and may provide it with a brighter long-term growth outlook.
Certainly, the outlook for the UK economy is highly uncertain at the present time. Weaker growth and the potential for downbeat consumer confidence could put greater pressure on a variety of industries. However, with British Land trading on a price-to-book (P/B) ratio of just 0.6, it seems to offer good value for money. This suggests that as well as a high income return, the stock may offer an impressive rate of capital growth in the long run.
Segro While British Land may be adapting to a changing retail environment, warehouse provider Segro (LSE: SGRO) could benefit from an increasing shift towards online shopping. As consumers continue to use their computers and increasingly their mobiles to buy a variety of goods online, demand for large warehouses is forecast to increase. This could provide the company with a tailwind that allows it to generate improving financial performance in the long run.
While the stock’s current dividend yield of 2.8% may be significantly lower than many other FTSE 350 REITs, it has the potential to increase its bottom line at a relatively fast pace in the coming years. This could lead to a faster rate of dividend growth than among its sector peers, which could increase investor interest in the stock.
With Segro appearing to have a sound strategy and trading on a P/E ratio of around 1.1, it seems to offer a favourable risk/reward ratio. As such, it could offer higher returns than a buy-to-let investment, while also providing greater diversity and lower overall risk due to its range of assets and strong financial standing. Because of this, I think now could be a good time to buy it.
Peter Stephens owns shares of British Land Co. The Motley Fool UK has recommended British Land Co. 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