Looking at H&R Real Estate Investment Trust for the 1st Time

Trading at a discount to tangible book value, shares of H&R Real Estate Investment Trust (TSX:HR.UN) may be a great fit for your portfolio.

| More on:
invest your money

As one of Canada’s biggest real estate investment trusts (REITs), H&R Real Estate Investment Trust (TSX:HR.UN) currently trades at slightly more than $22 per share. The company carries a market capitalization of almost $6.5 billion.

With more than 300 properties throughout Canada and North America, the western part of Canada makes up no more than 20% of the total portfolio. Ontario makes up close to one-third of the total number of properties, which is evenly split between Toronto and the rest of the province.

The good news for investors seeking an income opportunity is the diversification of the portfolio across both Canada and North America as a whole. Currently, close to 40% of the total properties are located in the United States, which provides cash flow in U.S. dollars. For the time being, the excess cash flows from these properties translate to a higher amount of Canadian dollars.

Given the diversified nature of this REIT, investors need not worry about a stronger Canadian dollar (CAD). Given the strong positive correlation between the CAD and the price of oil, the cash flows coming from south of the border will be worth less (as the CAD increases in value), but will be offset by the increase in rents in the western provinces.

Investors willing to purchase shares at current levels will receive a dividend yield in excess of 6% and the potential to receive capital appreciation in addition to the dividend yield.

Over the past 52 weeks, the trading range for shares of H&R Real Estate Investment Trust have traded between $20.96 and $23.83, making this a low volatility investment. The beta, which is a measure of a security’s volatility, is currently 0.53 which means the stock fluctuates roughly half of what the overall market does.

For investors wanting to look past the dividend yield to ask, “What value am I getting?”, the answer is, “Excellent value.” The tangible book value per share, calculated as assets minus liabilities, divided by the number of shares outstanding, is nothing less than $24.20. At the current price, shares trade at a discount to tangible book value by almost 8%.

Considering the sustainability of the dividend payment, the total dividends paid for fiscal 2016 were $275 million, which accounted for approximately 65% of cash flow from operations (CFO). For the prior fiscal year, the ratio was no more than 35%.

Considering the same metrics for fiscal 2017, the dividend accounted for 60% of CFO. While this number accounts for only a part of the entire fiscal year, investors should remember that the revenues of a REIT are evenly distributed throughout the year.

For low-risk investors seeking an income component and the potential for capital appreciation, shares of H&R Real Estate Investment Trust may just be what the doctor ordered.

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 Ryan Goldsman has no position in any stocks mentioned.

More on Dividend Stocks

thinking
Dividend Stocks

Should You Buy BCE Stock for its 8.6% Dividend Yield?

Down over 20% from all-time highs, BCE stock offers you a tasty dividend yield in 2024. But is the TSX…

Read more »

grow dividends
Dividend Stocks

How Long Would It Take to Turn $20,000 Into $100,000 With TSX Dividend Stocks?

Here's how high-quality TSX dividend stocks and the power of compound interest can help grow your investments by 400% or…

Read more »

Paper airplanes flying on blue sky with form of growing graph
Dividend Stocks

2 Soaring Stocks I’d Buy Now With No Hesitation

These two stocks may be the most expensive on the market, but they're high for a reason! And I'm still…

Read more »

Hour glass and calendar concept for time slipping away for important appointment date, schedule and deadline
Dividend Stocks

Invest $374.50 Each Month to Create Passive Income of $288 in 2024

Investing a specific amount each month to create passive income this year is possible with monthly dividend payers.

Read more »

Happy retirement
Dividend Stocks

2 Stocks to Help Turn $100,000 Into $1 Million

If you want to reach $1 million, $100,000 can certainly get you there. Even if you invest in some low…

Read more »

warning or alert
Dividend Stocks

Income Alert: These Stocks Just Raised Their Dividends

There's no shortage of companies that raised their dividends recently. Here's a trio of options to consider buying now.

Read more »

Business success with growing, rising charts and businessman in background
Dividend Stocks

Don’t Look Now, But These 3 TSX Stocks Look Poised for a Nice Rally 

Three TSX stocks are in a downtrend amid headwinds. 2024 may be rocky for them, but they are poised for…

Read more »

protect, safe, trust
Dividend Stocks

3 Safe Dividend Stocks to Beat Inflation

These three dividend stocks are excellent buys to beat inflation, given their solid underlying businesses and high yields.

Read more »