I’d put £66 a week into this high-yield property stock for £500 a year in passive income
Despite cash savings accounts paying more interest lately, I’d still rather invest in quality dividend shares for passive income. And one FTSE 250 property stock looks far more appealing to me than just sitting in cash.
Solid foundation
Londonmetric Property (LSE:LMP) is a real estate investment trust that owns a diverse collection of properties (mainly warehouses) in urban locations across the UK.
Its assets under management have grown from £1.2bn in 2013 to over £3bn today. Its list of occupiers include the likes of Amazon, Primark, and DHL. Needless to say, this provides a solid foundation for rental income, reflected in its exceptional occupancy rate of 98.7% (as of September 2022).
Londonmetric Property’s Top 10 Occupiers
| Occupier | Contracted rental income (%) |
| Primark | 4.1% |
| Amazon | 3.4% |
| Argos | 2.9% |
| THG | 2.9% |
| Eddie Stobart | 2.4% |
| DFS | 2.7% |
| DHL | 2.5% |
| Currys | 2.5% |
| Odeon | 2.4% |
| Waitrose | 2.3% |
It’s well known that many shopping centres and high streets are in decline as more consumer spending shifts online. However, the logistics and industrial warehousing space is benefitting as companies improve their distribution infrastructure to serve growing e-commerce demand.
Londonmetric’s net rental income reached £72.1m as of September, a 14% year-on-year increase. This gave the £1.9bn capitalised trust the ability to keep raising its dividend.
£500 a year in passive income
As things stand, the firm’s dividend for fiscal 2023 is expected to be 9.46p per share. With a share price of 193p today, that equates to a prospective dividend yield of about 4.9%. That’s well above the average FTSE All-Share index yield of 3.6%.
That means I’d need approximately 5,310 shares to generate £500 a year in passive income. Those would cost me around £10,300.
Clearly that’s a sizeable chunk of money. I may not be able to afford all that in one go. But if I instead drip-fed £66 a week into the stock, I could gradually work my way towards that figure.
Doing it this way would take three years to reach my target of £500 in annual passive income.
Of course, the share price won’t stand still for three years. But drip-feeding my money in every week would smooth out the natural ups and downs of the market.
One thing I should mention here is that I’m fortunate my broker offers zero-commission trading. Not all investment platforms do, though, with some still charging as much as £10 per transaction. That would make pursuing this strategy far more costly.
Risks to consider
As much as I like this stock, there’s still risk here. The value of the firm’s portfolio could take a big hit if the commercial property market drops further. It fell last year and it could fall again in 2023.
Saying that, the stock is down 32% in a little over a year, so some of this risk is likely already baked into the share price. And the company’s aim is to collect rent rather than flip property, so I’m not overly concerned long term.
Finally, it’s not always guaranteed that dividends will be paid. But the quality of the firm’s occupiers gives me confidence this is an excellent choice for passive income. That’s why I recently became a shareholder myself, adding the stock to my well-diversified portfolio of income payers.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Ben McPoland has positions in LondonMetric Property Plc. The Motley Fool UK has recommended Amazon.com and LondonMetric Property Plc. 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.
