Is British Land the Ultimate Retirement Share?

LONDON -- The last five years have been tough for those in retirement. Portfolio valuations have been hammered, and annuity rates have plunged. There's no sign things will improve anytime soon, either, as the eurozone and the U.K. economy look set to muddle through at best for some years to come.

A great way to protect yourself from the downturn, however, is to build your retirement fund with shares of large, well-run companies that should grow their earnings steadily over the coming decades. Over time, such investments ought to result in rising dividends and inflation-beating capital growth.

In this series, I'm tracking down the U.K. large caps that have the potential to beat the FTSE 100 over the long term and support a lower-risk, income-generating retirement fund (you can see the companies I've covered so far on this page).

Today, I'm going to take a look at British Land (LSE: BLND.L  ) , the U.K.'s second-largest real-estate investment trust. British Land's portfolio is focused on Central London offices and retail premises and is of a high quality, with long leases and high occupancy rates. But is it a retirement share?

Paying the rent
British Land's share price is correlated to the value of its property portfolio, which inflated massively before collapsing during the credit crunch. As a result, it has underperformed the FTSE 100 over the last 10 years:

 

2007

2008

2009

2010

2011

Trailing 10-Year Average

British Land Total Return

(43.5%)

(38.6%)

(7.7%)

14.7%

(7.4%)

3.8%

FTSE 100 Total Return

7.4%

(28.3%)

(27.3%)

12.6%

(2.2%)

6.8%

Source: Morningstar. Total return includes both changes to the share price and reinvested dividends. These two ingredients combined are what make it possible for equity portfolios to regularly outperform cash and bonds over the long term.

British Land's exposure to one of the biggest property bubble's in history has harmed its total returns, but its 10 billion pound portfolio remains highly attractive and income-generative -- and London property prices have recovered far more strongly than anywhere else in the U.K.

What's the score?
To help me pinpoint suitable investments, I like to score companies on key financial metrics that highlight the characteristics I look for in a retirement share. Let's see how British Land shapes up:

The basics

Year Founded

1856

Market Cap

4.8 billion pounds

Net Debt

2.5 billion pounds

Dividend Yield

4.8%

Five-year average financials

Operating Margin

22.8%

Interest Cover

2.2 times

EPS Growth

(1.8%)

Dividend Growth

16.7%

Dividend Cover

0.7 times*

Sources: Morningstar, Digital Look, British Land. *As a REIT, British Land is required by law to distribute 90% of its tax-exempt profits as dividends, so dividend cover is never going to be high.

Here's how I've scored British Land on each of these criteria:

Criterion

Comment

Score (out of 5)

Longevity

One of the oldest and largest London property companies.

5

Performance vs. FTSE

Could be better.

3

Financial Strength

Profitable, positive cash flow and plenty of liquid assets.

4

EPS Growth

Dire, but things should now improve.

2

Dividend Growth

Good yield and growth; it's an income investment.

4

 

 

Total: 18/25

A score of 18 is fairly respectable, especially given that the U.K. market is still recovering from a big property bubble. I think British Land could be a worthwhile addition to a retirement portfolio, given its strong income element and solid Central London assets -- which are always likely to be more resilient than commercial property elsewhere in the U.K.

An alternative to property
If you're not keen on property, then another way of identifying great dividend-paying shares is to study the choices of successful professional investors. One of the most successful income investors currently working in the City is fund manager Neil Woodford, whose dividend stock picks have outperformed the wider index by a staggering 305% over the last 15 years. You can learn about Neil Woodford's top holdings and how he generates such fantastic profits in this free Motley Fool report. It's completely free, and I strongly recommend you download"8 Shares Held By Britain's Super Investor" today, as it is available for a limited time only.

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Further investment opportunities:

Roland does not own shares in British Land. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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