Income Investors: Get This Safe 7% Yield for Your RRSP Now!

Get incredible income and total returns from Brookfield Property Partners L.P. (TSX:BPY.UN)(NASDAQ:BPY) stock today!

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What an incredible opportunity this is to get a safe +7% yield from Brookfield Property Partners (TSX:BPY.UN)(NASDAQ:BPY) stock for your RRSP account!

The high yield is partly thanks to the more than 11% retreat of the stock, as it reported its first-quarter results, as well as the stock’s tendency to increase its dividend every year.

How Brookfield Property is able to pay out a high yield and an increasing dividend

BPY has a combined strategy of owning, operating, and developing a diversified global real estate portfolio, as well as selling assets to maintain its high dividend yield and dividend increases.

The company has about 80% of its balance sheet in a core office and core retail portfolio that generates stable cash flows and targets total returns of 10-12%.

The rest of its balance sheet consists of a portfolio of mispriced properties and/or properties with significant value-add, such that the experienced BPY team can improve on the assets and either get higher rental income from them or sell them at a higher valuation in the future.

For this portfolio, BPY aims for whopping total returns of 18-20%, which come from cash flow generated from the assets as well as sales of mature assets.

Value for money

Recent results

Brookfield Property reported its first-quarter results on May 9. It generated funds from operations (FFO) and realized gains of US$367 million for the quarter, which was 37% higher than the period a year ago. However, on a per-unit basis, it only stayed flat at US$0.38, which indicated some dilution with its acquisitions. Still, the end result was a Q1 payout ratio of 87%, which was more than sufficient to cover the cash distribution.

We get a glimpse of the health of BPY’s individual business segments from looking at the year-over-year changes in their FFO generation.

In the first quarter, the core office segment generated FFO of US$140 million, down 8.5% compared to the same period in the prior year. The FFO decline was due to higher interest rates and the negative impact of a stronger U.S. dollar, which the company can’t control.

However, the quality assets and the team’s expertise led to 4.2% same-property net operating income growth, and BPY was able to sign leases at rents 16% higher on average than leases that expired in the period.

The core retail segment generated FFO of US$184 million, up 59% year over year thanks to the GGP acquisition in August 2018, as BPY acquired the remaining stake in the class A U.S. mall portfolio.

The opportunistic portfolio generated FFO, realizing gains of US$146 million, up 52% year over year. This included US$60 million of realized gains from the sales of mature assets.

Foolish takeaway

At writing, Brookfield Property offers a yield of 7.1%. Combined with the 5-8% per year cash distribution growth that management aims for, the stock can deliver total returns of about 12-15% per year. The discounted shares will likely boost those returns. What an incredible opportunity BPY stock is!

Notably, BPY’s cash distribution is a bit complicated. For example, its Q1 cash distribution consisted of U.S. interest, REIT dividend, and return of capital that are subject to U.S. withholding taxes — unless you hold the stock in your RRSP.

This makes BPY a perfect stock for income and total returns investors alike to buy and hold in their RRSPs/RRIFs. Quality real estate assets makes a great addition to any diversified income portfolio for their stable cash flow generation abilities.

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 Kay Ng owns shares of Brookfield Property Partners. Brookfield Property Partners is a recommendation of Stock Advisor Canada.

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