Investing in high-dividend stocks may seem an attractive option for investors. However, generally, a stock that offers you a tasty yield would have seen a decline in share prices. As the dividend yield and share prices are inversely related, you need to see if the decline can be attributed to market sentiment or deteriorating fundamentals.
Moreover, as dividend payouts are not guaranteed, it’s essential to delve into a company’s financials to analyze whether the payout is sustainable across market cycles.
In the last 18 months, companies in the real estate sector have felt the heat due to rising interest rates. Several real estate investment trusts (REITs) are trading lower than all-time highs, allowing you to buy the dip and benefit from a high dividend yield.
One such REIT is Slate Grocery (TSX:SGR.UN) which offers you a forward yield of 10.3%. Valued at a market cap of $672 million, shares of the REIT are down 39% from record highs. Due to its predictable cash flows, Slate Grocery has a monthly dividend payout. In order to earn $100 in monthly passive income, you need to buy 1,026 shares of the REIT worth $11,624.58.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| Slate Grocery | $11.33 | 1,026 | $0.097 | $99.52 | Monthly |
An overview of Slate Grocery REIT
Slate Grocery REIT owns and operates U.S. grocery-anchored real estate. Armed with a portfolio of $2.4 billion of real estate infrastructure in major U.S. markets, the REIT provides you with exposure to resilient grocery-anchored properties and strong credit tenants that provide shareholders with durable cash flow and the potential for capital appreciation over time.
In 2023, the REIT set a new record of 2.9 million square feet of total leasing at some of its highest annual rental spreads. Of the 635,000 square feet of total leasing completed in the fourth quarter (Q4), new deals were done at 31% above comparable average in-place rents. The company emphasized that non-option renewable spreads were also strong at 16% above expiring rents.
Slate Grocery’s leasing momentum was supported by healthy occupancy gains. It ended 2023 with an occupancy rate of 94.7%, up 150 basis points year over year. After adjusting for completed redevelopments, same-property net operating income rose by $2 million in the last year, and this trend is likely to continue in 2024.
What’s next for Slate Grocery stock?
Slate Grocery explained it continues to prudently manage its balance sheet to mitigate risk in the current macro environment. Last November, it amended the terms of a $137.5 million interest rate swap to lock in a 2027 maturity, limiting its exposure to floating-rate debt. More than 94% of the REIT’s debt is fixed at a weighted average interest rate of 4.4%.
Slate Grocery’s low in-place rents at $12.41 per square foot offer additional protection, as they are well below the market average. So, Slate Grocery has a significant runway to increase its rents and grow net operating income consistently.
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The grocery-anchored sector has displayed resiliency amid multiple macro headwinds. Additionally, tenant demand for grocery-anchored centres continues to accelerate as tenants want to be in well-located centres and close to consumers.
The amount of new retail space delivered in Q4 set an all-time quarterly low. Slate Grocery also expects elevated interest rates and high construction costs to limit new supply in 2024.
Priced at 9.5 times forward earnings, Slate Grocery stock trades at a discount of 22% to consensus price target estimates.
