Investors: It’s Not Too Late… Lock in This 8.7% Yield Today

The time to act is now. Lock in a succulent 8.7% yield from Automotive Properties REIT (TSX:APR.UN) before

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As the stock market continues to rally, many investors are getting a serious case of FOMO — fear of missing out. The last thing they want is to continue waiting on the sidelines while everyone else sees nice gains.

Others are taking a different approach. They’ve witnessed one of the biggest — and quickest — market rallies ever, as North American stocks have risen by approximately 40% off the March lows. These folks are convinced another sell-off is near, and they’re positioning their portfolios accordingly.

Some investors are stuck between these two approaches, essentially paralyzed with fear. They don’t want to miss out on the next wave higher, yet are also nervous about a potential crash.

It seems it’s tougher than ever to be an investor today. The world is just too uncertain.

The strategy I’d recommend to make it through these tumultuous times is to focus on quality assets. And I have just the stock. This well-regarded name also pays a succulent 8.7% dividend yield, an excellent payout in today’s world.

But don’t delay. The last thing you want is for the market to move higher and miss out on this opportunity. Let’s take a closer look.

The skinny

Automotive Properties REIT (TSX:APR.UN) has a unique business model. It buys auto dealership real estate and then leases that space back to dealership operating companies. As it stands today, the portfolio consists of 64 different properties spanning more than two million square feet.

As soon as the economy starts to return to normal, look for this REIT to continue its long-term growth plan. It has the potential to acquire hundreds of properties over the next decade or so as larger dealership operators buy out smaller players. To keep capital requirements low, these operating companies can flip the real estate over to Automotive Properties.

Leasing out auto dealerships has a few distinct advantages. Repair and maintenance revenue is strong no matter what the underlying economy does, making dealerships more recession resistant than you’d first think.

Long-term leases are the norm. The average lease on an Automotive Properties property lasts for another 13 years. And rent escalators of 1.5% annually are built into most leases too.

Automotive Properties REIT also has a large footprint in Canada’s key markets. More than 80% of the portfolio is located in the six largest Canadian cities. Even if the dealer partners have difficulty, the underlying land will still have significant value.

A handsome yield to wait

Like many REITs, Automotive Properties will likely report weak numbers from April and May as some of its tenants asked for rent deferrals. But the company has taken steps to protect its distribution.

It has approximately $85 million in cash and untapped lines of credit today, which is a good start. It also has a solid balance sheet and benefited from a well-timed equity raise earlier this year.

This all translates into a succulent dividend yield that should be sustainable over the long term. Remember, the company generated nearly $1 per share in funds from operations in 2019. It paid out approximately $0.80 per share in distributions, giving us a solid 80% payout ratio.

In other words, the current 8.7% dividend yield should be maintained. The company just needs to make it through today’s rough patch first, something it looks poised to do.

The bottom line

I can see a future where Automotive Properties shares are much higher than today. After all, the stock was nearly $13 a few months ago. It’s barely above $9 today.

Don’t miss out on this opportunity to lock in an 8.7% yield today, plus the potential for capital gains. Your future self will thank you.

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 Nelson Smith owns shares of AUTOMOTIVE PROPERTIES REIT. The Motley Fool owns shares of and recommends AUTOMOTIVE PROPERTIES REIT.

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