1 Dividend Stock REIT to Avoid, and 1 to Buy in Bulk

This dividend stock reported more poor earnings, so despite a 10% dividend yield, I would look to this other option instead.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Earnings season continues, and it’s not just the Big Tech names that people should be watching. Especially for Canadian investors who continue to be so interested in dividend stocks.

In fact, there was one real estate investment trust (REIT) that received some bad news this week, sending shares down about 4% on earnings. But never fear! Today, we may go over why you want to avoid this stock. Yet we’ll also give another option.

Dividend stock to avoid

Shares of Allied Properties REIT (TSX:AP.UN) dropped this week as the company came out with second quarter earnings that were less than thrilling.

The company reported several key factors that led to the drop. Funds from operations (FFO) and adjusted funds from operations (AFFO) per unit were down 10.6% and 11.1%, respectively, compared to the same quarter last year. This decline was attributed to the impact of recent portfolio-optimization transactions, which temporarily pressured these metrics.

Furthermore, operating expenses rose significantly, with a notable increase in general and administrative expenses by 55.3% due to a fair value adjustment on unit-based compensation plans.

The fair value loss on investment properties contributed to lower net income and comprehensive income, which was $28 million compared to $126 million in the same quarter last year. Plus, despite efforts to reduce debt through property sales, the total indebtedness ratio increased, impacting overall financial stability.

More to come?

What’s more, it might be the beginning of more trouble for Allied stock. The REIT could see continued increases in general and administrative expenses or unexpected costs related to property maintenance. Even upgrades could further erode profitability.

Allied also has significant debt maturing in 2025. Any difficulties in refinancing this debt or unfavourable terms could strain the company’s financial position. Add in the immense competition in commercial real estate, and the future looks uncertain to say the least.

So despite offering a 10.2% dividend yield, note the company’s payout ratio at an insane 399%. That dividend is being pushed to the brink, and likely about to burst.

A dividend stock to buy

While Allied stock may have a tarnished future, Granite REIT (TSX:GRT.UN) looks bright. The company is due to announce earnings on August 7, but there are still many reasons to remain positive about the company’s future.

During the first quarter, net operating income (NOI) increased to $114.5 million from $107.4 million in the same quarter last year, driven by higher rental revenue and property acquisitions. FFO was also up slightly to $84.6 million, with its occupancy rate strong at 98.5%!

This reflects the continued high demand for logistics and industrial properties. What’s more, the company completed acquisitions totalling $300 million, expanding its portfolio in strategic markets.

It’s likely we’ll continue to see more of this in the second quarter, with the stock remaining a strong option. This will involve more acquisitions, occupancy growth, and expansion. Meanwhile, it offers a secure 4.4% dividend yield. One supported by a 95% payout ratio. While still relatively high, it can still be supported during this time.

Bottom line

A dividend yield over 10% can look incredibly appealing. But only if that dividend can be maintained. In the case of Allied stock, that really doesn’t seem to be the case. The REIT is struggling, and that could mean investors are in for a cut in the future.

Meanwhile, Granite stock may have a lower dividend, but it’s secure. The company holds strong expansion and earnings growth, with a whopping 40.7% profit margin! And with industrial properties continuing to be in high demand, that doesn’t look like it will slow down any time soon.

Should you invest $1,000 in Allied Properties Real Estate Investment Trust right now?

Before you buy stock in Allied Properties Real Estate Investment Trust, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Allied Properties Real Estate Investment Trust wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool recommends Granite Real Estate Investment Trust. The Motley Fool has a disclosure policy.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

Confused person shrugging
Dividend Stocks

Where to Invest $2,500 in the TSX Today

These TSX stocks offer attractive dividends and a shot at decent upside on a rebound.

Read more »

Pile of Canadian dollar bills in various denominations
Dividend Stocks

Invest $25,000 in These Dividend Stocks for $1,956.66 in Annual Passive Income

Dividends stocks can make a huge difference, even if shares don't move an inch. And these might be the best.

Read more »

Pile of Canadian dollar bills in various denominations
Dividend Stocks

Got $5,000? 5 Income Stocks to Buy and Hold Forever

These income stocks have a solid dividend-payout history that can help you earn stress-free passive income.

Read more »

grow money, wealth build
Dividend Stocks

Why I’d Invest $10,000 in This Undervalued Dividend-Growth Stock for Decades of Income

This undervalued dividend stock offers a high yield of over 8% and can help you earn more than $200 in…

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

Here’s Exactly How a $20,000 TFSA Could Potentially Grow to $200,000

Index funds like the iShares S&P/TSX Capped Composite Index (TSX:XIC) are tax free in a TFSA.

Read more »

Dividend Stocks

How I’d Invest $6,000 in Canadian Real Estate Stocks to Build Lasting Wealth

Canadian REITs on sale! See how grocery-anchored retail properties offering 9% yields could turn $6,000 into lasting wealth despite US…

Read more »

rain rolls off a protective umbrella in a rainstorm
Dividend Stocks

Economic Headwinds: Should You Still Consider Buying the Dip?

A market dip might seem like a bumpy road, but it can be far smoother in the future with the…

Read more »

e-commerce shopping getting a package
Dividend Stocks

Consumer Spending Plays Amidst the Current Market Dip

Consumption may go down in market dips, but certain consumer stocks are certainly better off than others.

Read more »