Brookfield Property Partners (TSX:BPY.UN)(NASDAQ:BPY) has had an incredible run over the past year. Since Christmas last year, the company’s stock is up 25%. Despite this spurt in valuation, the stock still offers a relatively handsome 6.8% dividend yield.
The real estate investment trust (REIT) is one of the largest and most robust dividend stocks on the market. The current yield is nearly 134% higher than the average yield of the TSX 60 Index. As such, a number of my Fool colleagues have called it one of the best dividend stocks to add to your retirement account.
However, I want to look beyond the yield and see if the company has what it takes to maintain this handsome dividends when the market gets rocky. Here’s a closer look at Brookfield’s underlying fundamentals.
Like any other REIT, Brookfield Property is driven by the location and type of its properties. The company owns one of the most diverse real estate portfolios I’ve ever seen.
Assets are spread across four continents, including some landmarks, such as London’s Canary Wharf and 1 Manhattan West in New York City. 70% of the portfolio is based in the United States, but the company is gradually diversifying to other regions, such as the Middle East and Australia.
Office and retail spaces make up the bulk of the portfolio, contributing 41% and 42%, respectively, in 2018. Recently, the company has been adding niche investments, such as self-storage facilities and manufactured housing to diversify further.
Since the REIT was spun off in 2013, it has managed to offer a fairly consistent and steadily growing dividend. The quarterly dividend has grown at an annual compounded rate of 17.1%. Meanwhile, the team has managed to maintain an average dividend yield of 5.33% over that same period.
However, the growth in dividends has been the biggest contributor to BPY’s total shareholder return over the past six years. The stock price has moved mostly sideways, starting 2013 at $22 and currently trading at $25.
This makes BPY better suited to investors seeking consistent and growing income rather than capital appreciation. It could also mean that the stock price has failed to keep up with the value of underlying assets.
Back in September 2018, the company estimated that the net asset value (NAV) of each unit was US$29. It may be fair to assume that NAV may have appreciated over the past year, but the stock price still trades at a heavy discount to NAV.
The current price is roughly 30% lower than last year’s NAV. That means the stock is tremendously undervalued.
There seems to be no justification for this undervaluation. The company’s dividend coverage ratio is relatively high when you consider free cash flow (3.2), while the debt-to-equity ratio (1.3) is justified for a real estate firm.
With its consistent performance, diverse portfolio, and undervalued stock, Brookfield Property Partners is probably one of the best real estate investment opportunities available to Canadian investors.
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Fool contributor Vishesh Raisinghani has no position in any of the stocks mentioned. Brookfield Property Partners Is a recommendation of Stock Advisor Canada.