Slate Grocery REIT (TSX:SGR.UN) on the TSX stands out as a solid option for those looking to invest in the retail real estate sector. Focusing on grocery-anchored real estate in the United States, this real estate investment trust (REIT) benefits from stable tenant demand. Even in uncertain economic times. Groceries are essential, so grocery stores are less vulnerable to economic downturns, providing the dividend stock with a level of resilience other retail properties may not have. Let’s get more into why.
Some history
One of the appealing aspects of Slate Grocery REIT is its consistent dividend history. As of writing, it offers a forward annual dividend yield of 8.5%. While it is notably high compared to many of its peers, it is great news for income-focused investors, especially those looking to generate regular cash flow. The REIT’s five-year average dividend yield stands at 9.3%, indicating a commitment to maintaining robust shareholder returns. While the payout ratio is high, at over 150%, this is not uncommon for REITs. These stocks are designed to return most of their earnings to investors.
However, it hasn’t been all smooth sailing for Slate Grocery REIT. The most recent earnings report for Q2 2024 showed a slight decline in quarterly revenue growth, down by 0.50% year-over-year. Plus net income also dropped by 26.3%. This decline could be concerning for some investors, but it’s important to note that the dividend stock still maintains a healthy operating margin of 75.7%, meaning it continues to run efficiently despite these challenges. The key for investors is to look at how well Slate can manage its debt and continue generating cash flow.
Looking ahead
On the financial side, Slate’s market cap sits at approximately $812 million, with an enterprise value of $2.4 billion, making it a moderately sized player in the REIT space. Its price-to-earnings (P/E) ratio is currently 17.8, and the forward P/E is much lower at 7.4. This suggests that investors expect the REIT to perform better in the coming quarters. The low forward P/E signals that the dividend stock could be undervalued and presents an attractive buying opportunity for long-term investors.
Looking forward, Slate’s outlook remains positive, particularly due to its focus on grocery-anchored properties. As grocery stores are an essential service, these tend to remain open even during economic downturns. This should keep occupancy rates high and cash flow steady. Furthermore, with grocery sales rising due to increased demand for food security and fresh produce, the dividend stock is well-positioned to capture long-term growth in this space.
More to come
Recent headlines also suggest that the dividend stock is actively expanding its portfolio, acquiring properties in growing markets across the U.S. This strategy not only diversifies its income sources but also enhances its ability to weather localized economic pressures. The REIT’s management has shown a clear focus on ensuring sustainable growth while balancing debt levels – a crucial element for REITs that rely on leverage to grow their portfolios.
For those considering adding a REIT to their portfolio, Slate Grocery REIT offers both stability and income potential. With its focus on grocery-anchored properties, strong dividend history, and growth prospects, it stands out as a solid choice. While recent earnings show some softness, the long-term fundamentals remain strong.
Bottom line
Altogether, Slate Grocery REIT provides an excellent combination of income and growth potential. Its focus on grocery-anchored properties, along with a healthy dividend yield, positions it as a resilient investment option, even in volatile markets. As always, it’s important to consider the balance between risk and reward. But the dividend stock certainly offers a compelling case for income-focused investors.
