Monthly dividend stocks are a fantastic tool for creating a reliable source of passive income. Unlike quarterly dividends, which are the norm for many companies, monthly payouts provide more frequent cash flow. This can be particularly appealing for those relying on investment income for living expenses or reinvestment. The steady cadence of monthly dividends can also help with budgeting, offering a predictable income stream to align with regular expenses. Allied Properties Real Estate Investment Trust (TSX: AP.UN), a Canadian real estate investment trust (REIT) focusing on urban office spaces, stands out as a strong contender in the monthly dividend category.
Image source: Getty Images
The dividend
What makes AP.UN especially appealing is its remarkable dividend yield. As of writing, Allied Properties offers a forward annual dividend yield of 10.8%, equating to a monthly distribution of $0.15 per unit. This high yield is among the most competitive in the Canadian REIT space, attracting investors seeking both income and potential growth. The monthly nature of these payouts makes it an attractive choice for income-focused investors who prefer the regularity of more frequent distributions.
And that dividend is still supported. Diving into the financials, Allied Properties reported its third-quarter earnings on October 30, 2024. Revenue came in at $146.6 million, reflecting year-over-year growth of 5.4%. This steady revenue increase demonstrates the dividend stock’s resilience in a challenging commercial real estate market. However, the REIT also reported a net loss of $94.2 million for the quarter. While this might seem concerning, it’s crucial to understand that real estate investment trusts often experience short-term losses due to large depreciation expenses or one-time charges. These don’t necessarily impact cash flow or dividend distributions.
Looking ahead
Despite the recent loss, the future outlook for Allied Properties is promising. Analysts predict substantial earnings growth for the REIT, with a projected annual increase of 110.8%. This optimistic forecast underscores the potential for Allied to overcome short-term challenges and capitalize on its long-term growth strategy. Its focus on high-quality, centrally located office spaces in major Canadian cities gives it a competitive edge, even as hybrid work models reshape demand for commercial real estate.
The strength of Allied’s portfolio lies in its strategic allocation of urban office spaces. With a presence in Canada’s largest cities, the dividend stock benefits from demand for well-located properties catering to businesses requiring central locations for collaboration and client-facing activities. This focus allows Allied to remain relevant even as companies adapt to evolving workplace needs. Furthermore, its assets’ urban nature means the REIT is less likely to be affected by suburban office oversupply, which has been a concern in some markets.
Still valuable
One aspect to monitor is the dividend stock’s payout ratio, which currently sits at 399%. At first glance, this figure might raise questions about the sustainability of its dividend. However, payout ratios for REITs are often calculated differently due to the nature of their business model. Cash flow from operations is a better measure of a REIT’s ability to sustain dividends, and Allied has historically demonstrated its capacity to meet distribution obligations, even in challenging times.
Past performance supports Allied’s reputation as a reliable dividend payer. Over the years, it has consistently delivered monthly dividends, offering peace of mind to income-focused investors. While its stock price has faced volatility, this is not uncommon in the REIT sector, where market conditions, interest rates, and macroeconomic factors can have an outsized influence. For long-term investors, the potential for recovery and future appreciation adds to Allied’s appeal.
Bottom line
Ultimately, monthly dividend stocks like Allied Properties offer the best of both worlds – regular income and the opportunity for capital appreciation. For investors looking to build a passive income stream, AP.UN’s combination of high yield, a strategic asset portfolio, and growth potential makes it a compelling choice. Whether you’re reinvesting dividends for compound growth or using the income for day-to-day expenses, Allied Properties stands out as a strong candidate to meet your financial goals. With its consistent payouts and promising outlook, the office REIT remains a solid cornerstone for those seeking dependable passive income in the Canadian market.
