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Real estate investment trusts, or REITs, continue to offer good dividend yields through 2026. This sector has not been particularly popular with investors recently, as high interest rates not only drive down property values but also increase their often high debt.
However, like most things, there are always exceptions. And in some cases, investors can lock in a good dividend yield that looks healthy. That’s why I recently upgraded my position LondonMetric Property (LSE:LMP).
In total, I now own 1,267 shares today, which produces just over £157 in income each year. But now the question is, should I buy more?
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A case of bull
As one of the largest commercial landlords in London Stock ExchangeLondonMetric Property enjoys recurring and reliable profits from a diverse portfolio of property types and tenants. These include logistics hubs, theme parks, health centers, and convenience stores, among others.
However, despite the share price only rising slightly over the past 12 months, the underlying business has delivered strong results.
Driven by a combination of organic growth and acquisitions, the company’s rental income for the six months ending September 2025, increased by 14.6% to £221.2m. Property reviews also helped boost the value of its property portfolio to a record £7.4bn, supported by 98.1% occupancy and an average lease term of 16.4 years.
When we combine this kind of predictable and reliable income with industry-leading costs, it’s hard not to be tempted by its 6.3% yield.
What could go wrong?
Despite my optimistic view of this business, it is unwise to ignore the risks. Like most REITs, the balance sheet carries significant debt.
This was fine when interest rates were close to 0%, but apparently not recently. And as the Bank of England cuts interest rates slowly, this high gearing rate puts pressure on profits.
There are also risks associated with adoption. With many REITs suffering under the burden of their outstanding loans, LondonMetric has been using its size and financial strength to acquire smaller players in the industry.
In many cases, these acquisitions are made at a discount compared to a few years ago. And that is an encouraging sign of value-oriented thinking in management. But adoption is not always successful.
If its acquired properties fail to meet performance expectations, the additional revenue may not be worth the additional debt to the business. Of course, the company has the option to sell some of its assets if it needs to raise some cash.
But as mentioned earlier, high interest rates affect real estate prices. Therefore, the company may be forced to dispose of certain properties for less than what they paid for them – destroying shareholder value in the process.
An important point
Like most REITs, LondonMetric Properties carries certain risks. But unlike many, it operates with industry-leading efficiency and profits are still covered by earnings.
As interest rates continue to fall, dividend coverage is on track to improve further. And that’s why, without risk, I’m seriously considering buying more shares for my income portfolio. But it’s not the only income opportunity on my radar right now.
