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Dear Fellow Fools,
This month, we have three companies with big dividends for you from three different industries. Perhaps more importantly, the risks here are largely unique to each business, though two have more interest rate sensitivity, and one is arguably more sensitive to the weather and industrial demand than anything else.
If you can’t guess which recommendations we’re talking about, don’t worry; we’re going to take a look at what makes each of them attractive. Let’s dive in!
There are exceptions, but when it comes to real estate investing via the stock market these days, it’s not been much fun — if you like appreciating stock prices, that is.
Inverting the situation, because stock prices across the sector have been mired in mediocrity, it probably means it’s a pretty good time to go hunting for investing ideas.
After some consideration, the current investment case for Melcor Developments (TSX:MRD) — a leading real estate developer, investor, and operator in Western Canada — resonated better than most options.
It’s not that Melcor is currently knocking it out of the park. Like its peers, rising interest rates and general economic uncertainty have impacted recent quarterly results. However, despite selling considerably fewer lots than it did in last year’s first quarter, Melcor’s income-producing properties remain stable. Funds from operations checked in at ~$7 million, or $0.23 per share, handily covering the $0.16 dividend Melcor declared.
The 5.7% yield that Melcor currently sports is an anomaly for the company over the past decade. Not only that, Melcor trades at just 0.3 times book value, which is also exceptionally low relative to the company’s past.
These metrics point to the market having a rather dour outlook for Melcor’s immediate future. To be sure, murkiness exists, but given the market’s treatment, we’re of the mind that an overly pessimistic scenario is currently reflected in Melcor’s share price.
This is a company that’s been around since 1923 and seen its share of ups and downs. Indeed, that dividend has been pared back in the past if warranted by adverse macro conditions like the global financial crisis and the onset of the pandemic. However, it bounced back on both occasions, as the world economy found its footing.
Further strife might be in store for Melcor in the short term. Or not! We’re confident, though, that over the next decade, we’re going to collect a reliable stream of income from this company and benefit from a multiple that trades more in line with past levels. A one-two punch that makes for an appealing total return outlook for those that pick up shares today.