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Is Smart REIT Still a Smart Buy?

Smart REIT (TSX:SRU.UN) is a terrific company with a bountiful 5.3% dividend yield. The stock pulled back by over 22% in the latter part of 2016 due to fears of rising interest rates. The company owns 140 shopping malls across Canada and has over $8.6 billion worth of assets.

The company has 72% of its shopping centres anchored by Wal-Mart Stores, Inc. (NYSE:WMT). There’s no question that this anchor has driven huge amounts of traffic in the past and will continue to over the next few years. Wal-Mart gives Smart REIT the competitive edge over its peers in the retail-focused REIT space. But is there reason to be concerned over the recent underperformance of the shares of Wal-Mart?

It’s no mystery that Amazon.com, Inc. (NASDAQ:AMZN) is making life very difficult for retail giants like Wal-Mart. There is a ridiculous amount of competition eating into the company’s earnings. Warren Buffett recently disposed of a huge stake of his Wal-Mart shares. Is this something that Smart REIT shareholders should be worried about?

Will Amazon cause Wal-Mart to shut down a large amount of its stores over the next five years?

I don’t believe there is any reason to panic if you’re a Smart REIT shareholder. Wal-Mart will still be around for many years down the line, even as Amazon continues to steal the retail giant’s market share. Wal-Mart is fighting back with its own e-commerce site and has been taking steps to increase its online sales. Wal-Mart is very well positioned to give Amazon a good fight for its money, and I don’t believe Wal-Mart stores will be shutting down across Canada anytime soon.

Some consumers just don’t like to shop online. There’s something enticing about going to a mall and seeing the goods that you’ll be buying and testing the items out before you actually hand over your money. Wal-Mart is a fantastic brand that will always drive traffic to its physical stores, and Amazon won’t change this anytime soon.

What about valuation?

The stock currently trades at a 13.9 price-to-earnings multiple, a 1.3 price-to-book multiple, and a 6.9 price-to-sales multiple, all of which are in line with the company’s five-year historical average multiples of 14.9, 1.3, and 6.7, respectively.

There’s no question that the stock isn’t as cheap as it was a few months ago, but I still believe it offers an attractive yield at a fair valuation for the average income investor.

The dividend is slightly lower than its historical average yield of 5.5%, so I would recommend waiting for another pullback, so you can get a yield of 5.5% or more.

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Fool contributor Joey Frenette has no position in any stocks mentioned. David Gardner owns shares of Amazon.com. The Motley Fool owns shares of Amazon.com.

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