1 Magnificent Dividend Stock That's Down 10% and Trading at a Once-in-a-Decade Valuation

1 Magnificent Dividend Stock That’s Down 10% and Trading at a Once-in-a-Decade Valuation

This dividend stock may be down around 10%, but there is a huge future opportunity for those wanting growth as well as a 5.35% dividend.

Amy Legate-Wolfe

Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Before joining Motley Fool Canada, she wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote: “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published July 21, 2024 9:15 am EDT

| More on: DIR.UN

When it comes to value, it can be hard to get it all. Investors want future growth while also getting their hands on current passive income. And that’s why dividend stocks are such a focus. What’s more, undervalued dividend stocks.

Yet among them all, Dream Industrial REIT (TSX:DIR.UN) is currently trading at a valuation that could be considered a once-in-a-decade opportunity for dividend-focused investors. Down approximately 10% over the past year, DIR.UN presents a compelling case for those seeking stable income and long-term growth.

dividends grow over time — Source: Getty Images

Why buy now?

There have been challenges, and we’ll get to those, but first, let’s discuss why investors should consider DIR stock right now. Dream Industrial Real Estate Investment Trust (REIT) boasts a dividend yield of around 5.35%, which is highly attractive in the current market environment. The REIT has consistently paid monthly distributions, providing reliable income to its investors. With a history of steady dividend payments and potential for growth, DIR is a prime candidate for income-focused portfolios.

Over the past year, Dream Industrial has made strategic acquisitions that significantly enhance its portfolio. The acquisition of Summit Industrial Income REIT for $5.9 billion and a 150,000-square-foot income-producing property in Brampton are noteworthy. These acquisitions not only expand the REIT’s footprint but also diversify its revenue streams, positioning it well for future growth.

Plus, Dream Industrial manages a diversified portfolio of 322 industrial assets across key markets in Canada, Europe, and the U.S., totalling approximately 70.6 million square feet. This geographical and asset-type diversification helps mitigate risks and enhances stability, making it a resilient choice for investors.

Overcoming the issues

The REIT faces some challenges, such as shareholder dilution due to recent equity offerings and a transition in leadership with Alexander Sannikov taking over as chief executive officer. These factors are overshadowed by its strategic growth initiatives and solid fundamentals. The market’s reaction to these changes has contributed to the stock’s recent decline, creating an attractive entry point for long-term investors.

However, the REIT has demonstrated strong financial performance, with significant increases in net rental income. For instance, in Q1 2024, Dream Industrial reported net rental income of $85.9 million. That was a 5.4% year-over-year increase, driven by robust performance in key markets. This financial strength supports the sustainability and potential growth of its dividend.

What’s more, DIR is trading at a forward price-to-earnings (P/E) ratio of 19.03. This is considered low compared to industry peers. This suggests that the stock is undervalued relative to its earnings potential. Analysts have set a price target of $15.80, indicating a potential upside of approximately 21% from current levels.

Bottom line

Dream Industrial REIT represents a unique investment opportunity with its high dividend yield, strategic acquisitions, diversified and high-quality portfolio, and strong financial performance. Despite the stock being down 10% over the past year, its current valuation offers a rare chance to invest in a top-tier REIT at a significant discount. For investors seeking a blend of stable income and growth potential, DIR.UN stands out as a magnificent dividend stock trading at a once-in-a-decade valuation.