Cominar Real Estate Trust: Yes, You Can Trust This 7.6% Yielder

Cominar Real Estate Investment Trust (TSX:CUF.UN) offers investors a generous 7.6% dividend. That’s just one reason to own this forgotten real estate giant.

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While The Bank of Canada’s recent rate cut is good news for those who are looking to borrow money to buy a house, car, or other big item, it’s bad news for those people who are looking to get paid interest. Shares in just about every interest rate-sensitive stock shot up on the news, leaving those investors waiting on the sidelines with the unenviable task of having to settle for even less yield than before.

It doesn’t have to be that way. They’re few and far between, but the market is offering investors a few opportunities to get a decent yield while not taking a huge amount of risk.

Maybe it’s because most of the company’s assets are in Quebec, but for some reason Cominar Real Estate Investment Trust (TSX:CUF.UN) doesn’t get the attention many of its similarly sized peers attract. The company has a market cap of more than $3 billion, and currently holds 563 retail, office, and industrial properties, consisting of more than 45 million square feet worth of space. This makes the company the third largest manager of property in Canada, including a dominant position as the leader in its home province.

Although it hasn’t yet reported results, which include its newest acquisition of 10 shopping malls from Ivanhoé Cambridge Inc. (a subsidiary of Caisse de dépôt, the Quebec-based pension giant), the company still showed decent growth in its most recent quarter. It grew revenue by more than 7% annually and grew funds from operations by nearly 8%. The company was also successful in passing on increased rents to customers, increasing them by an average of 2.7% compared to last year.

Although the company’s payout ratio is flirting with 90%, its actual cash payout ratio is just over 60%, since many unit holders take part in the company’s dividend reinvestment program. This program gives investors a 5% discount for taking dividends in the form of new shares.

The company was so bullish back in August that it increased the monthly distribution. Although a 2% increase from $0.12 to $0.1225 doesn’t seem like much, it’s nice to get a raise on an investment yielding more than 7%.

Another strength of Cominar is its ownership. Management owns more than 7% of the company, which is rare for a REIT. And instead of taking the cash from its deal with Cominar, Ivanhoé elected to receive more than 13 million shares in the company, for proceeds of more than $250 million. Thus, more than 15% of the company is owned by the two parties.

Investors who like buying assets at a discount will also be happy to know that Cominar sells at a discount to its book value. Shares currently trade hands for $19.41, while book value is more than $2 more, coming in at $21.60. Some of this discount is probably due to the debt the company took on to fund the acquisition, which makes it a little riskier. Still, at just over a 50% debt-to-assets ratio, Cominar’s debt is just a little concerning, not alarming.

Cominar has a lot going for it. But most importantly for income investors, it gives investors a dependable 7.6% current yield, and hasn’t missed a dividend payment since it started publicly trading back in 1999. It’s not often investors can get that kind of stability with such a generous current distribution. I suspect this stock will trade closer to book value as it pays down some of the debt, giving investors the chance for some gains as well. Including the dividend, this stock could easily return 15% in 2015.

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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 has no position in any stocks mentioned.

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