Up to date on September twenty eighth, 2024 by Felix Martinez
Actual Property Funding Trusts – or REITs, for brief – could be a unbelievable supply of yield, security, and progress for dividend traders. For instance, Alternative Properties Actual Property Funding Belief (PPRQF) has a 5.1% dividend yield.
Alternative Properties additionally pays its dividends on a month-to-month foundation, which is uncommon in a world the place the overwhelming majority of dividend shares make quarterly payouts.
There are solely 78 month-to-month dividend shares that we presently cowl. You may see our full record of month-to-month dividend shares (together with price-to-earnings ratios, dividend yields, and payout ratios) by clicking on the hyperlink beneath:
Alternative Properties’ excessive dividend yield and month-to-month dividend funds make it an intriguing inventory for dividend traders, although its dividend cost has been largely stagnant in recent times.
This text will analyze the funding prospects of Alternative Properties.
Enterprise Overview
Alternative Properties is a Canadian REIT with concentrated operations in a lot of Canada’s largest markets. Given its dimension and scale and the truth that its operations are solely centered in Canada, it’s one in every of Canada’s premier REITs. The belief has guess large on Canada’s actual property market, and up to now, the technique has labored.
The corporate has a high-quality actual property portfolio of over 702 properties which make up practically 65.9 million sq. ft of gross leasable space (GLA).
Supply: Investor Presentation
Properties embody retail, industrial, workplace, multi-family, and growth belongings. Over 500 of Alternative Properties’ investments are to their largest tenant, Canada’s largest retailer, Loblaw.
From an funding perspective, Alternative Properties has some attention-grabbing traits, not the least of which is its yield. Nevertheless, it additionally has an uncommon dependency on one tenant, an absence of diversification that we discover considerably troubling.
Whereas grocery shops are usually fairly secure, this stage of focus on what quantities to at least one tenant could be very uncommon. This lack of diversification is a big consideration for traders which can be taking a look at Alternative Properties.
Whereas it might be preferable for the corporate to diversify to repair its focus, that could be a gradual course of. As well as, because the tenant it’s so dependent upon is usually secure, we don’t essentially see an enormous danger because of the trade struggling. Nevertheless, this type of focus on one tenant is extraordinarily uncommon for a REIT, and it’s price noting.
Progress Prospects
Alternative Properties has struggled with progress because it got here public in 2013. Because the finish of 2014, the belief’s first full yr of operations as a public firm, it has compounded adjusted funds-from-operations per share at a price of simply ~0% per yr.
The belief has grown steadily by way of portfolio dimension and income, however comparatively excessive working prices and dilution from share issuances have saved a lid on returns for shareholders. Historical past has proven Alternative Properties can exhibit sturdy progress traits on a greenback foundation, however traders have been left wanting as soon as translated to a per-share foundation.
Supply: Investor Presentation
Dividend Evaluation
Along with its progress woes, Alternative Properties’ dividend seems to be shaky in the meanwhile. The anticipated dividend payout ratio for 2024 is 82%.
Whereas even that payout ratio is excessive, it is usually true that REITs usually distribute near all of their earnings, so it’s hardly uncommon that Alternative’s payout ratio over 80%. Alternative Properties’ present distribution offers the inventory a 5.0% yield, which is a lovely dividend yield.
Word: As a Canadian inventory, a 15% dividend tax will likely be imposed on US traders investing within the firm exterior of a retirement account. See our information on Canadian taxes for US traders right here.
Traders mustn’t count on Alternative Properties to be a dividend progress inventory, because the distribution has remained comparatively flat since Might 2017. The belief did enhance its dividend by 1.3% to a complete annual distribution of $0.7596 throughout the latest quarter. That mentioned, with the payout ratio as excessive as it’s, and FFO-per-share progress muted, traders mustn’t count on the payout to see an enormous increase anytime quickly.
Alternative Properties has additionally not minimize the distribution, and we don’t see an imminent menace of that proper now. However it’s price mentioning that if FFO-per-share deteriorates considerably going ahead, the belief will seemingly have to chop the distribution on account of its excessive payout ratio.
That is notably true as a result of we see Alternative Properties’ borrowing capability as restricted, given its already-high leverage. Alternative Properties has a debt to fairness ratio of virtually 1.4, which in line with the corporate is beneath the trade friends.
As well as, it has massive quantities of debt coming due in levels within the coming years, so we see the belief’s debt financing as close to capability in the present day. Alternative has regular debt maturities within the coming years, and whereas they’re unfold out, the quantities are important. Alternative has no means to pay these off as they mature, so refinancing seems to be the one viable choice.
Ought to it expertise a downturn in earnings, Alternative Properties must flip to extra dilution for added capital. Whereas we don’t see a dividend minimize within the close to future, the mix of an absence of adjusted FFO-per-share progress, the excessive payout ratio, and a excessive stage of debt seems dangerous.
Ultimate Ideas
Alternative Properties is a excessive dividend inventory and its month-to-month dividend funds make it stand out to earnings traders. Nevertheless, quite a lot of components make us cautious about Alternative Properties in the present day, similar to its lack of diversification inside its property portfolio, and its alarmingly excessive stage of debt.
With a considerably dangerous dividend, we view the inventory as unattractive for risk-averse earnings traders. Traders on the lookout for a REIT that pays month-to-month dividends have higher decisions with extra favorable progress prospects, greater yields, and safer dividends.
Don’t miss the assets beneath for extra month-to-month dividend inventory investing analysis.
And see the assets beneath for extra compelling funding concepts for dividend progress shares and/or high-yield funding securities.
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