TSX dividend stocks have taken a serious hit since the market crash. One sector that has been particularly vulnerable is REITs and real estate companies. Industrial and apartment REITs have bounced back relatively well, but retail, office, and retirement REITs continue to trade at depressed prices.
This TSX dividend stock is yielding over 14%!
One real estate stock that is dirt cheap today is Brookfield Property Partners (TSX:BPY.UN)(NASDAQ:BPY). This dividend stock tanked in March and lost more than 50% of its value. Today, the company is yielding a whopping 14.4%!
Brookfield Property is a diversified, global real estate company with 45% of cash flow derived from retail/malls, 37% from offices, and 18% from a mix of multifamily, industrial, and other real estate assets.
Retail is hurting, but it is not dead
Since the March crash, Brookfield Property has basically been priced for default. This is mainly due to its large exposure to retail. This segment is undoubtedly facing some serious headwinds right now, especially since many retail locations are temporarily closed. Brookfield will likely see a high number of rent deferrals, a rise in bad debts, and probably some tenant bankruptcies. Yet this does not mean malls and retail are finished.
In fact, Brookfield Property owns some of the best-quality malls in America. The longer the crisis persists, the more eager U.S. consumers will be to leave their houses and do what they love: spending money. This surge will be gradual, but I think America will be eager to get to the mall for entertainment, shopping, eating, and socializing again.
Brookfield’s office portfolio is relatively safe
Its office segment should also manage through the crisis. It has a 93% occupancy rate and an average lease length of nine years. Its office portfolio is composed of best-in-class and best-located properties across the world. These are regional and head offices for high-credit-quality tenants.
I think the pandemic crisis could trigger a new, work-from-home trend. Yet, office spaces still serve an important purpose. Anyone working from home with kids running around can probably agree.
Rather, companies may begin to occupy more quality spaces — spaces with flex room, efficient floorpans, lifestyle amenities, and proximity to shops/restaurants. These are exactly the kind of office environments Brookfield develops and owns. I foresee its office properties remaining relevant for a very long time to come.
This dividend stock is dirt cheap
2020 will be financially challenging for Brookfield Property. Yet this dividend stock is set up to weather the crisis. The company has quite a bit of debt, but it is mostly asset-level, non-recourse debt.
Management recently noted that it has a solid balance sheet with $1.5 billion in cash, +$4 billion in credit capacity, and, of course, the backing of its parent, Brookfield Asset Management.
Its 14% dividend is a bit suspect, however. For 2019, the FFO payout ratio, without realized investment gains, was 95%. I believe if crisis restrictions are removed fairly quickly (i.e., in three to six months), management could maintain the dividend.
Yet it may also be beneficial if the dividend is cut. A 50% reduction in the dividend would save the company about $670 million a year. New investors would still get a nice 7% yield, the company could de-lever and then aggressively buy back stock to make up for its collapsed valuation.
Brookfield Property is fire-sale cheap
In December, management valued the company with a book value of US$29 per share. The stock traded at a discount to book value then. Today, it trades at a mere 31% of that book value. You are getting 69% of the business for free. The stock has consistently been undervalued, but that it crazy!
I am waiting for management to do something drastic to unlock value for shareholders. Who knows? Maybe BAM will take it private (hopefully at a reasonable price to book).
Regardless, the stock is so cheap that it has nowhere to go but up. If it only returned to its February pricing, you would make 100% and then some (from the chunky dividends). So, if you can stomach some short-term risks, buy this high-yielding dividend stock and unlock some serious long-term gains.
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Fool contributor Robin Brown owns shares of Brookfield Asset Management 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.