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Real estate investment trusts (REITs) are a popular choice for those seeking high yields in the Canadian market, especially when these REITs offer monthly dividends. While the appeal of high yields is strong, it's important to scrutinize the underlying factors that contribute to these returns, as they may reflect broader issues within the business.
Slate Grocery REIT Overview
Slate Grocery REIT (TSX: SGR.UN) stands out as a notable option in this sector. Unlike many REITs focused on Canadian properties, Slate Grocery's portfolio is entirely based in the U.S. As the name suggests, its properties are exclusively anchored by grocery businesses. The REIT manages approximately 117 properties spread across 24 U.S. states, with a total portfolio value of around $2.4 billion.
The tenant roster includes major names such as Walmart, Kroger, and Albertsons, which together make up over 22% of the REIT’s total tenant base. This high-profile tenant mix enhances the stability of the grocery-focused business model and the overall reliability of the REIT's portfolio.
The grocery sector is known for its resilience, as food is a basic necessity. This characteristic allows grocery businesses to maintain relatively stable sales, even during economic downturns that can affect other sectors more severely.
Dividend Performance
Slate Grocery REIT currently offers a notable yield, even by REIT standards. The yield has been bolstered by a significant stock decline of 32% from its post-pandemic peak, resulting in an attractive dividend return. Despite this decline, the stock experienced a quick recovery after the 2020 market crash, reaching pre-pandemic levels within about 18 months. However, after peaking in 2022, the stock has since fallen and has not yet regained its previous highs.
This decline might present an opportunity for potential capital appreciation in the future.
Regarding dividend sustainability, while the payout ratio has been high over the past decade, it is crucial to consider the funds from operations (FFO) payout ratio, which has remained healthy in recent quarters. This indicates that despite the high payout ratio, the REIT has managed to maintain its dividend payments effectively.
