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Today's stock price FTSE 100 Index The selection is down 30% from its peak at the end of 2021.
Underlying earnings fell in 2022, before recovering somewhat in 2023.
But now, forecasts suggest earnings per share (EPS) should more than double by 2026, reducing the price-to-earnings (P/E) ratio to just 8.6.
That's low by FTSE 100 standards, so what company am I talking about? Property of LondonMetric (LSE: LMP).
Real estate market crash
As with other stocks in similar sectors, the slowdown is the cause of the recent problems. But also, as with related stocks, I think the market overreacted and pushed the stocks too far down.
Markets do that a lot, and it creates the kind of uncertainty that can make big-city investors bite their knuckles. But I love it, because it can give patient private investors like us a chance to buy on the cheap.
But the low P/E valuation is not what I like most about LondonMetric. No, it's the dividend yield. It is currently forecast to be 5.2% and has remained there over the past few difficult years.
This is the type of business that can do that and can balance its dividends even if earnings go up and down in the short term.
Real estate
The company invests in and develops a wide range of commercial real estate properties, including retail parks, distribution centres, offices… and others, including some residential properties. It derives its income primarily from rentals.
It's easy enough to see how such a business could suffer during a global pandemic and lockdowns, and again when inflation soars, pushing interest rates through the roof.
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More problems
Although forecasts show things are looking up, that doesn't mean LondonMetric is out of the woods for now.
No, real estate investment trusts (REITs) typically take on a lot of debt to buy properties, which is now more expensive. Add to that the fact that retailers and other commercial customers are struggling, and it's clear that an economic downturn could hit a company like this harder than many others.
In the year to March 2024, LondonMetric's gross debt almost doubled to nearly £2.1bn, but the value of its property assets tripled following a pair of acquisitions.
And, importantly, we should be quickly approaching the other side of high interest rates. We may only see one cut this year, but it would be a good start.
Cash in advance
The dividend is by no means guaranteed and I truly believe that is what keeps most shareholders on board. We still face real estate risk and if the company fails to maintain the cash dividend for a year, I think we could see a share price collapse.
But at the time of the fiscal year, CEO Andrew Jones spoke of “Confident in increasing our first quarter fiscal 2025 dividend by 19%“.
He added: “We are fully aligned with shareholders on a shared mission and will be relentlessly efficient in how we operate our business and how we allocate capital in our quest toward dividend aristocracy.“
I think the dividend aristocracy is worth considering.
