Income Investors: Canadian Apartment Properties REIT Is a Distribution-Growth King in the Making

Canadian Apartment Properties REIT (TSX:CAR.UN) is a solid REIT, but is it worth the premium valuation?

| More on:
apartment

Canadian Apartment Properties REIT (TSX:CAR.UN) is one of the highest-quality REITs out there. Many income investors may be overlooking this solid REIT because of the 3.8% yield, which is considerably lower than many of its peers.

It’s worth noting that Canadian Apartment Properties stock has appreciated by a great deal over the last few years, much more than your average REIT, so if you want stable income in addition to capital appreciation, then Canadian Apartment Properties is definitely worth putting on your radar.

Canadian Apartment Properties owns apartments, townhouses, and land-lease communities in locations around Canada. Of the REIT’s properties, approximately 50% are located in Ontario and approximately 23% are located in Quebec. Ontario and Quebec are two solid provinces that are expected to see decent economic growth in the years going forward. Only 6% of the REIT’s properties are located in Alberta –a good sign if you’re not a fan of Canada’s struggling energy sector.

Many millennials have been opting to rent rather than take on mortgages for properties that are probably worth less than what they’re selling for. There’s no question that the Canadian real estate market is overheated, and for many, renting is simply the only realistic way to live in Canada.

Apartment REITs like Canadian Apartment Properties are expected to remain stable for the long haul. If you’re a cautious income investor, you can sleep peacefully at night knowing that your distribution will be safe, even if the markets decided to crash tomorrow. The distribution was left intact during the Financial Crisis, but further increases weren’t made until many years after.

The management team is shareholder friendly, and you can count on them to grow the distribution as the REIT’s cash flow increases through growth initiatives. The REIT has grown its distribution for six consecutive years, and I believe the trend is going to continue for years down the road. Although the raises are only in the 2.5% range, they may pick up in magnitude depending on how fast the REIT is adding new units to its already solid portfolio of assets.

Valuation

Canadian Apartment Properties trades at a substantial premium over its peers because of the stable, growing distribution. I would recommend adding this REIT to your radar and buying on any dips that may happen in the months ahead. If the distribution goes above 4%, then you should probably think about loading up.

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 Joey Frenette has no position in any stocks mentioned.

More on Investing

Canada national flag waving in wind on clear day
Dividend Stocks

3 TFSA Red Flags Every Canadian Investor Should Know

Day trading in a TFSA is a red flag. Hold index funds like the Vanguard S&P 500 Index Fund (TSX:VFV)…

Read more »

sale discount best price
Stocks for Beginners

Have $2,000? These 2 Stocks Could Be Bargain Buys for 2025 and Beyond

Fairfax Financial Holdings (TSX:FFH) and another bargain buy are fit for new Canadian investors.

Read more »

Rocket lift off through the clouds
Stocks for Beginners

2 Canadian Growth Stocks Set to Skyrocket in the Next 12 Months

Despite delivering disappointing performance in 2024, these two cheap Canadian growth stocks could offer massive upside in 2025.

Read more »

Beware of bad investing advice.
Bank Stocks

Shocking Declines: Canadian Stocks That Disappointed Investors in 2024

TD Bank and Telus International are two TSX stocks that are trading below 52-week highs in December 2024.

Read more »

canadian energy oil
Energy Stocks

2 No-Brainer Energy Stocks to Buy With $1,000 Right Now

If you have $1,000 to invest right now, CES Energy Solutions (TSX:CEU) and Enerflex (TSX:EFX) are no-brainer options.

Read more »

Paper Canadian currency of various denominations
Dividend Stocks

1 Magnificent Canadian Stock Down 15% to Buy and Hold Forever

Magna stock has had a rough few years, but with shares down 15% in the last year (though it's recently…

Read more »

Female raising hands enjoying vacation, standing on background of blue cloudless sky.
Investing

1 Market Surprise No One Saw Coming a Year Ago

Here's why long-term bond ETFs remained in the toilet throughout 2024 and what you can about it as a Canadian…

Read more »

Man holds Canadian dollars in differing amounts
Dividend Stocks

Earn Steady Monthly Income With These 2 Rock-Solid Dividend Stocks

Despite looming economic and geopolitical uncertainties, these two Canadian monthly dividend stocks could help you generate reliable income in 2025…

Read more »