Market Crash: This 15%-Yield Stock Is 50% Off

Here’s how to view your investment in high-yield Brookfield Property Partners LP. (TSX:BPY.UN)(NASDAQ:BPY) stock.

| More on:
Volatile market, stock volatility

Image source: Getty Images

The 2020 market crash has brought Brookfield Property Partners LP. (TSX:BPY.UN)(NASDAQ:BPY) stock to its knees, from the point of view of its stock price.

Market Crash: This REIT trades at a steep discount

BPY stock hasn’t experienced a market crash in its current form. It was spun off from Brookfield Asset Management (BAM) in 2013. However, BAM, its general partner and manager still owns a large stake (about 51%) of BPY. So, management’s interests are highly aligned with those of BPY unitholders.

Notably, BAM is a value investor. It buys back shares only when they trade at substantial discounts from what they’re worth.

In recent weeks, BPY has repurchased about six million shares (roughly 1% of its outstanding shares). It’ll likely continue repurchasing shares as this market crash keeps its shares dirt-cheap.

Just how cheap is dirt cheap? At writing, the stock trades at $12.62 per share, which is less than 30% of its book value. This is a 52% discount from a more normal price-to-book multiple of 0.60 times.

BPY Price to Book Value Chart

BPY Price to Book Value data by YCharts. Brookfield Property Partners’ historical price to book.

This means that when things return to normal, BPY stock can easily double from current levels, based solely on price appreciation.

Market Crash: Crippling BPY’s real estate business

Investors aren’t as worried about the market crash as they are about the coronavirus crisis affecting Brookfield Property’s business.

About 85% of BPY’s balance sheet consists of its core office and retail real estate portfolio. With malls closed in the United States and people working from home as much as possible (in the near term), BPY’s short-term cash flow is at risk.

However, it’s important to note that BPY’s core assets are of top-notch quality. Its core office portfolio is 93% leased to high credit quality tenants, with a remaining average lease term of more than eight years. Its core retail portfolio is also best in class and located at prime locations.

Additionally, its core businesses are funded almost entirely with asset-level, non-recourse debt with an average term to maturity of about four to five years.

Experts believe a working vaccine for the coronavirus will arrive in about a year. Assuming the economy gets back to normal within a year or two, BPY has the liquidity to withstand this economic turmoil.

Market Crash: Is BPY stock’s 15% yield sustainable?

In general, any yield over 10% is perceived as unsustainable. However, this market crash has pushed yields of many quality stocks to over 10%. If most of BPY’s tenants can’t pay rent, the real estate stock can’t pay shareholders from its cash flow.

In 2019, BPY paid out US$1.28 billion of dividends. With about US$6 billion on hand, it is well-capitalized. However, paying out cash distributions may not be the best use of capital right now.

Better use of cash may be to buy back more shares. However, it would lose investor confidence if it were to cut its cash distribution

The severity of the impact of the coronavirus crisis on BPY’s profitability in the near to medium term is a big unknown. Using social distancing, we’re slowing down the spread of the virus. The sooner the pandemic is behind us, the sooner the economy can return to normal.

Even if BPY does suspend its dividend, I have confidence it will restore it once things get back to normal.

The Foolish bottom line

There’s no doubt that the coronavirus crisis will have a huge impact on BPY’s profitability this year. The hope is that the flattening of the curve comes sooner rather than later so more lives can be saved and the sooner the world economies can return to normal.

In this market crash, it’s better to view BPY’s dividend as a bonus. However, I believe that if BPY does suspend its dividend, it will restore it in the future.

Investors should consider BPY as a total return investment that can double from current levels and pay a very juicy yield in the future when the economy normalizes.

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 ASSET MANAGEMENT INC. CL.A LV and Brookfield Property Partners. The Motley Fool owns shares of and recommends Brookfield Asset Management. The Motley Fool recommends BROOKFIELD ASSET MANAGEMENT INC. CL.A LV and Brookfield Property Partners LP.

More on Dividend Stocks

Dividend Stocks

Turn a $10,000 Investment Into $844 in Cash Every Year

The power of compound interest from regular investments in quality dividend stocks can deliver solid long-term returns and make you…

Read more »

Dividend Stocks

Grab This 10.8% Dividend Yield Before It’s Gone!

This dividend stock is down 43% in the last year, and it's about to turn around in the near future.…

Read more »

grow dividends
Dividend Stocks

2 TSX Dividend Stocks With Seriously Huge Payouts 

If you are looking for dividend payouts of up to 7-11% of the stock price, now is the time, as…

Read more »

Shopping card with boxes labelled REITs, ETFs, Bonds, Stocks
Dividend Stocks

For $1,000 in Annual Income, Buy 1,163 Shares of This TSX Stock

Fiera Capital is a popular TSX dividend stock as it currently offers a tasty yield of 13.3%. But is the…

Read more »

A plant grows from coins.
Dividend Stocks

Old Faithfuls: Canadian Stocks Whose Dividend Payments Rise Each Year

Income investors should feel safe and secure owning three dividend aristocrats, also known as the old faithful trio.

Read more »

Retirement plan
Dividend Stocks

Boost Your CPP Pension With This Simple Hack

The CPP takeout decision is never easy, although one simple hack can significantly increase the pension payment.

Read more »

value for money
Dividend Stocks

Investors, Don’t Miss Out on These Top Dividend Stocks!

The stock market turmoil has driven these two Canadian dividend stocks down lately. But they might not remain cheap for…

Read more »

analyze data
Dividend Stocks

Better Buy for Dividends: TD Stock or Enbridge Stock?

TD and Enbridge trade near their 12-month lows. Is one stock now oversold?

Read more »