The TSX today continues to show signs of recovery — especially as inflation looks like it continues to drop, and interest rate hikes could be a thing of the past. Yet it’s still a great time to consider finding the right dividend stock. One to consider is Slate Grocery REIT (TSX:SGR.UN) with an insanely high 11% dividend yield as of writing.
But before you go and buy in bulk, let’s look at why that yield is so high and whether it should prove that returns will come the way of investors.
Slate stock
Slate is a real estate investment trust (REIT) that owns and operates grocery-anchored real estate across the United States. As of writing, it operates about US$2.4 billion of critical real estate infrastructure across metro markets. These are essential products that proved their worth during the pandemic.
While other REITs struggled severely, Slate stock managed to continue climbing thanks to the essential investment. Americans will continue to go to the vast array of grocery stores across the U.S. for these essentials. What’s more, in the U.S. there is far more competition. This allows Slate stock to continue growing as well, finding new opportunities to expand their locations.
Yet after stable climbing over the last few years, Slate stock recently dropped with higher inflation and interest rates hurting the stock. So, is it still a good buy?
Earnings interest
During the most recent earnings report, Slate stock noted that occupancy continued to be strong, along with its fundamentals. The company completed strong leasing agreements, with new deals completed at 18.4% above its comparable average in-place rent. New leasing also drove a 20-basis point occupancy gain over the last quarter. This brought its occupancy rate to a strong 94.1%.
Rental revenue increased 4.6% year over year, to US$50.629 million in the third quarter. Yet there were some points of trouble. This included that net income dropped 63.1% to US12.37 million for the quarter. Furthermore, funds from operations (FFO) dropped by 7.7%. Still, management was positive about the future of the dividend stock.
“Our team’s strong leasing performance at attractive rental spreads continues to drive gains in occupancy and net operating income, keeping the REIT well positioned to provide unitholders with durable cash flow. We believe we have significant growth still embedded in our portfolio, with in-place rents that are well below market. Strong fundamentals in the grocery-anchored sector will provide further tailwinds as we seek to realize this growth and increase the overall value of our business.”
Blair Welch, chief executive officer of Slate Grocery REIT.
Are analysts on board?
Analysts now believe that Slate stock is looking to sector perform in the near future. The earnings outlook has been cut back, as earnings were below what was forecast by analysts. The company remains strong thanks to its defensive grocery-anchored chains, and this looks to remain stable. Healthy demand will certainly help the stock get back to normal as well.
However, the long-term is a bit more uncertain. This could prove a challenge in, as one analyst put it, a “more challenging macro setup in a higher for longer rate world.” Yet overall, the valuation looks good — especially while it trades at 18.67 times earnings, holds an 11.09% dividend yield, and with shares down 33% in the last year.
So, overall, there are reasons to buy and reasons to wait. If you’re looking long term, there could be a rebound that brings in strong dividend income for investors. Yet it’s a bit more unclear how the company will last when the next economic downturn comes. So, sure, consider Slate stock for that dividend yield. But keep an eye after you buy.
