In this environment, there are tonnes of opportunities for investors to buy stocks while they are trading undervalued. Even in this opportune environment, investors face difficult decisions when deciding which stocks to buy. Should you buy a reliable dividend stock with an attractive yield or a high-potential growth stock trading ultra-cheap?
While growth stocks are certainly ultra-cheap right now and could be an excellent investment for some Canadians, high-quality and reliable dividend stocks with higher-than-normal dividend yields also offer a significant opportunity.
That’s why, in my view, high-quality residential real estate stocks are some of the best investments you can buy now.
Residential real estate is one of the safest industries you can invest in because people always need somewhere to live. Furthermore, the price of REITs has fallen considerably in the last two years, giving investors the opportunity to take advantage of the value and buy now.
So if you’re looking to increase your passive income and buy a high-quality dividend stock in this opportune environment, here’s why Morguard North American Residential REIT (TSX:MRG.UN) is one of the best to consider.
Why Morguard is one of the best dividend stocks to buy now
There’s no question that real estate is one of the best industries to invest in. In fact, many Canadians have a dream of owning a rental property (or several) since real estate is so defensive and given the significant returns you can make over the long haul.
But with Canadians needing huge sums of cash just for a down payment on a single property, an investment in Morguard, especially at this price, is something anyone can consider.
Plus, owning a massive REIT with a professional management team has a lot of benefits, the first of which is that you can buy the stock in a TFSA and earn tax-free income for the length of your investment.
Furthermore, with any REIT, but especially Morguard, investors get instant diversification. Rather than paying hundreds of thousands or even millions of dollars for a single rental property with potentially only one tenant, for only a few hundred dollars investors can gain exposure to Morguard’s massive portfolio, with properties located in both Canada and the United States.
So instead of being exposed to only Canadian real estate in a single region or town, investors can gain exposure to rental properties in nine different states south of the border, as well as Ontario and Edmonton in Canada.
In addition, while owning a rental property can be stressful when you need to find a new tenant, as you could potentially go a few months with an occupancy rate of 0% and no income from your property, with Morguard, you never have to worry about impacts on the occupancy rate since it owns so many properties.
In fact, aside from the pandemic, its historical occupancy rate is roughly 95%, and even during the worst of the pandemic, it only dropped to about 92%.
How much value does Morguard offer today?
With the stock now trading right at the bottom of its 52-week range, it now trades at a forward price to adjusted funds from operations (AFFO) ratio of just 10.5 times. Meanwhile, its five-year average is roughly 15.9 times.
In addition, the yield on its dividend, which it pays every month, has climbed to more than 5%, well above its five-year average of 4.1%.
Plus, while the economy has been worsening over the last year, Morguard continues to increase its revenue and net operating income. For example, in the second quarter, same-property net operating income increased by 6.4% in its U.S. portfolio and more than 16% in its Canadian portfolio.
So if you’re looking for a high-quality dividend stock to buy now while it’s cheap, Morguard is certainly a compelling option.