Collect $1,000 Per Month From Dream Office Real Estate Investment Trst

Dream Office Real Estate Investment Trst (TSX:D.UN) is a passive-income machine with some nice potential upside. It’s a far better deal than an investment condo or house.

| More on:
The Motley Fool

Who wants to deal with all the hassles of owning physical real estate?

Think about all the work that goes into renting out a condo or a house. First you have to drive over to show the place, likely more than once. Then you have to check the background of your chosen tenant, pull their credit report, and so on.

Next, you have to deal with the tenant. That includes collecting rent, fixing things they break, and even finding solutions to problems that aren’t even your fault, like crummy neighbors. And let’s not even talk about the potential of having to fix plugged toilets or getting a 4:00 a.m. emergency call about a burst pipe.

Now imagine having to deal with all of this while only getting a cap rate of 3%. That’s the reality in the downtown of Canada’s two major real estate markets, Toronto and Vancouver. Things are a little better in other major centres, but not much.

Fortunately, there’s an easier solution. Investing in REITs gives people access to a truly passive real estate investment that pays generous dividends. It doesn’t get much better than that.

The only question left to ask is, what REIT should investors choose? Here’s the case for investing in Dream Office Real Estate Investment Trst (TSX:D.UN).

Wait. That one?

Dream has spent much of the last year in the news for all of the wrong reasons.

The company’s portfolio is weighted towards Alberta–specifically Calgary–which is not a good thing in 2016. The company owns more than 21.5 million square feet of gross leasable area spanning more than 200 different buildings. About 20% of its net operating income comes from Calgary and close to 30% comes from Alberta.

Dream’s share price got hit hard by Alberta’s weakness, falling nearly 35% since the beginning of 2015. As it became more and more apparent that earnings from the province were going to be weak for much longer than first thought, Dream’s management did the prudent thing and slashed the company’s dividend, reducing the monthly payout from $0.1866 to $0.125 per share.

But Dream isn’t taking all of this lying down. Management is making astute moves, including selling what are deemed to be non-core assets in places where the office market is still strong. The company will use this cash influx to strengthen the balance sheet.

Even though Dream recently wrote down the value of its Alberta assets significantly–which hit net asset value hard, dropping that value from more than $32 per share all the way down to $23–the company’s shares still trade at a discount of approximately 30% to their true value. And remember, as Alberta recovers, so will the price of Dream’s assets owned in the province.

Finally, Dream’s new dividend is truly sustainable and provides an excellent yield of just over 9%. In the first six months of 2016, Dream earned $1.33 per share in funds from operations. That puts it on pace to earn $2.66 per share for the year, while the new dividend only comes to $1.50 per share. That’s a payout ratio of just 56%.

Earn $1,000 per month

Dream gives investors the opportunity to get paid handsomely while waiting for the share price to recover.

Compared to other investments, it doesn’t take much initial capital to get a lot of monthly cash flow from Dream. An investment of 8,000 shares would generate $1,000 per month in dividends. This would cost approximately $133,000.

Perhaps $1,000 per month is a little much, and a goal of $100 per month is more obtainable. To do that, an investor would need to invest approximately $13,300 in 800 Dream shares.

And remember, there’s definitely potential for the dividend to increase as Alberta recovers and tenants start moving back into abandoned Calgary towers.

Yes, Dream Office REIT doesn’t look particularly healthy right now. But it’ll get over these temporary problems, and investors are paid a generous dividend for their patience. It doesn’t get much better than that.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Nelson Smith owns shares of Dream Office Real Estate Investment Trst.

More on Dividend Stocks

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

2 Stocks Under $50 New Investors Can Confidently Buy

There are some great stocks under $50 that every investor needs to know about. Here’s a look at two great…

Read more »

think thought consider
Dividend Stocks

Down 10.88%: Is ATD Stock a Good Buy After Earnings?

Alimentation Couche-Tard (TSX:ATD) stock might not be the easy buy-case it once was. Here’s a look at what happened.

Read more »

money cash dividends
Dividend Stocks

TFSA Dividend Stocks: Earn $1,200/Year Tax-Free

Canadian stocks like Fortis are a must-have in your portfolio to earn tax-free yields for decades.

Read more »

sale discount best price
Dividend Stocks

1 Dividend Stock Down 11 Percent to Buy Right Now

Do you want a great dividend stock down 11% that can provide years of growth potential? Here's one heavily discounted…

Read more »

Growth from coins
Dividend Stocks

1 Grade A Dividend Stock Down 11% to Buy and Hold Forever 

If you're looking for the right dividend stock at the right price, you're going to want to consider this insurance…

Read more »

Target. Stand out from the crowd
Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

Are you looking for dividend stocks to buy right now? Here are two top picks!

Read more »

edit Taxes CRA
Dividend Stocks

Tax Time: How to Keep More of Your Money

Nearly everyone hates paying taxes, although Canadians can lessen the financial pain with the right tax strategies.

Read more »