I’m always on the lookout for a high-yielding dividend share, especially if it’s got growth prospects too. Does this FTSE 100 stock fit the bill?

The real estate investment trust (REIT) sector’s a terrific source of income right now. Land Securities currently yields 6%, while another REIT, LondonMetric Property (LSE: LMP), yields 6.7%. This is more than just a coincidence. To qualify for REIT tax breaks, companies must hand 90% of rental income to investors as dividends.

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A sector under pressure

UK property shares have struggled for years. Working from home has weakened demand for offices, while online shopping hits footfall at brick and mortar stores. Higher interest rates make borrowing more expensive, squeeze profits and give investors higher yields on cash and bonds, without risking their capital on dividend stocks.

LondonMetric’s been caught up in that wider gloom. Its share price is down around 32% over five years, although the rate of decline has slowed. It’s fallen roughly 10% over the last year. Are we looking at a recovery?

The sector urgently needs lower interest rates. Cheaper borrowing would reduce financing costs, improve profitability and make property investments more attractive. A healthier economy would help tenants and support rental growth too.

A reliable income stream

LondonMetric’s not a traditional office or shopping centre landlord. It focuses on logistics, convenience, healthcare, entertainment and leisure properties, including warehouses and distribution facilities that benefit from changing shopping habits.

Full-year results (16 April) were encouraging as net rental income rose 16.6% to £455.3m. The board hiked the dividend 3.8% to 12.45p, marking its 11th consecutive year of growth.

First-half results (19 October) showed a 6% increase in net rental income, while rent collection remained above 99% and occupancy was 97.4%.

Yet the experts are divided. On 20 October, Berenberg Bank reiterated its Buy recommendation, but trimmed its 12-month price target from 931p to 863p. That still suggests potential gains of 23.5% from today’s 699p, if correct.

Berenberg’s encouraged by LondonMetric’s portfolio and income prospects, but that lower target reflects a more cautious view of the valuation and the pace of recovery.

The following day, Jefferies reiterated its much lower 593p target, implying the shares could fall another 15%. That’s a striking difference of opinion. The recovery’s far from guaranteed.

High income, no growth

LondonMetric looks reasonably valued, with a price-to-earnings ratio of 13.9. The forecast yield’s attractive at 6.84% this year and 7.16% in 2027. The risk is that interest rates climb still higher, the UK economy weakens and tenants struggle to pay their rent. LondonMetric also has £2.9bn of net debt.

Buying an income share when its price is depressed can make sense. Reinvested dividends buy more shares at today’s lower prices, potentially magnifying the rewards if a recovery eventually arrives.

I think LondonMetric’s worth considering with a long-term view. I’m tempted, but will wait to see if the Bank of England hikes interest rates again next month. Investors who prioritise growth more highly might prefer this beaten-down FTSE 100 stock with huge recovery potential…

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Harvey Jones does not hold any positions in the companies mentioned.