Quick context before the detail: is this market correction a once-in-a-decade chance to buy ultra-high-yield income stocks? sits at the intersection of a few real-world decisions most readers face at some point. Here is a clear summary of what is going on, and why it matters.
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The FTSE 100 boasts some of the most generous dividend income stocks in the world. Today, 15 of them yield more than 5% a year. That’s comfortably ahead of the best instant-access savings accounts, with the added bonus of potential share price growth on top.
Yields are calculated by dividing the dividend per share by the share price. So when share prices fall, yields rise. That makes market dips a particularly appealing time to buy income shares. As the Iran war sadly continues, are we looking at an opportunity today?
Top FTSE 100 dividend options
The FTSE 100 has already slipped into correction territory, defined as a fall of 10% or more. That’s pushed yields noticeably higher across a range of sectors. Life insurer Legal & General Group offers the biggest trailing yield of all at a stunning 8.55%. Insurer Standard Life yields 7.85%, while wealth manager M&G yields 7.2%. Another insurer, Aviva, yields 6.3%.
Real estate investment trusts, or Reits, are also terrific sources of dividends. Land Securities Group (LSE: LAND) yields 7.2%, while Londonmetric Property yields 6.6% and British Land 6.3%.
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Land Securities, or Landsec, is one of the UK’s largest commercial property owners and developers, with a broad portfolio of offices, shopping centres and retail parks. Like much of the sector, it has faced a tough few years.
The pandemic dealt a double blow, crushing retail footfall while accelerating the shift to online shopping. At the same time, the rise of working from home reduced demand for office space. The subsequent cost-of-living crisis added further pressure, squeezing consumers, pushing up borrowing costs and denting returns from property disposals.
Even so, underlying rental income has remained relatively resilient, and tenant occupancy levels have held up well.
This stock is cheaper than a decade ago
There were hopes of a recovery this year, due to the anticipated drop in interest rates. This should both reduce the cost of capital and support both businesses and consumers. The Iran conflict has wrecked that for now. Landsec shares are down around 11% over the past month alone. Over 12 months, they’re up just 3%.
In fact, at 586p the shares of roughly half their value of a full decade ago. That explains the high yield and low valuation. The price-to-earnings ratio is a modest 11.3.
This could present a buying opportunity to think about, but risks remain. That’s especially so if the conflict drags on, denting growth and driving up inflation and interest rates. Property companies like Landsec are particularly sensitive to borrowing costs and demand. Yet I think this could be a good moment to consider Landsec. The short term is likely to remain bumpy, but investors who take a long-term view will potentially reap the rewards. Not just in income, but growth too. If and when the shares finally recover.
This isn’t the only FTSE 100 income stock trading around a 10-year low today. I can see several more worth looking at. A sensible approach may be to drip-feed money in, to take advantage of today’s reduced valuations. If shares fall further, be ready to invest even more.
