For Canadians looking to generate reliable passive income, investing in dividend stocks can be an effective way to build a steady cash flow. One of the best sectors for consistent, high-yielding dividends is real estate, particularly real estate investment trusts (REITs). Among them, Slate Grocery REIT (TSX:SGR.UN) stands out as an under-the-radar income-generating machine. Offering a strong yield and monthly payouts. If you were to invest $6,000 into Slate Grocery REIT today, you could earn hundreds of dollars in passive income every year — all with little effort beyond the initial investment.
Slate REIT
Slate Grocery REIT specializes in U.S. grocery-anchored retail properties, meaning its tenants are primarily supermarkets and essential retail stores. Unlike traditional shopping malls, which can be vulnerable to economic downturns and shifts toward e-commerce, grocery stores remain a necessity. No matter the economic climate. That gives Slate Grocery REIT a level of resilience that many other retail REITs lack. No matter what happens in the stock market, people still need food, household goods, and daily essentials. And that means grocery tenants will continue to generate steady cash flow for Slate.
Slate Grocery REIT recently reported its third-quarter 2024 earnings, showing strong financial stability. The dividend stock generated $213.56 million in revenue over the past 12 months, with a 9.1% year-over-year revenue growth. Its operating margin of 76.32% suggests a highly efficient business model, ensuring that a large portion of its revenue turns into profit.
However, quarterly earnings growth declined by 49.6% year over year. This could be a concern for long-term investors. The drop may be related to higher interest rates affecting borrowing costs, as REITs typically use leverage to expand their property portfolios. One of the biggest factors investors should consider with REITs is their debt levels, as these companies often rely on financing to acquire properties. As of the most recent quarter, Slate Grocery REIT holds $1.16 billion in debt, with a debt-to-equity ratio of 136.14%.
Is the dividend safe?
A high dividend yield doesn’t mean much if the dividend stock can’t maintain it. Investors need to look at the payout ratio, which measures how much of the company’s earnings go toward dividends. Slate Grocery REIT’s payout ratio is currently 176%, which is higher than ideal.
Generally, a payout ratio over 100% suggests that a company is paying out more in dividends than it earns, meaning it may need to cut payouts in the future if earnings don’t improve. However, because REITs have different financial structures, distributing a large percentage of income to shareholders for tax benefits, these can sustain higher payout ratios than regular companies. Still, investors should monitor this closely.
Future outlook
Despite the temporary drop in earnings growth, Slate Grocery REIT is well-positioned for long-term success. Its portfolio of grocery-anchored properties remains highly defensive, and as inflation stabilizes and interest rates potentially decline, its borrowing costs could become more manageable.
Plus, grocery store demand isn’t going anywhere. While traditional retail has struggled against online shopping, grocery stores remain a critical part of everyday life, keeping Slate’s tenants in business. The dividend stock is also actively expanding its portfolio, meaning that revenue growth could pick up again in the coming years.
At writing, Slate Grocery REIT currently offers a dividend yield of 8.81%, with an annual dividend of $1.25 per share. That means if you invest $6,000, you could earn approximately $527.50 per year in dividends!
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY | TOTAL INVESTMENT |
| SGR.UN | $14.22 | 422 | $1.25 | $527.50 | monthly | $6,000 |
Foolish takeaway
If you’re looking for a high-yield dividend stock with strong passive-income potential, Slate Grocery REIT is a compelling option. Its grocery-anchored properties provide a level of stability, and its monthly dividend payouts make it a great choice for investors who want consistent cash flow.
However, while Slate Grocery REIT’s 8.81% yield is strong, investors looking for higher yields may need to explore alternative REITs or dividend stocks with sustainable double-digit yields. If your goal is stable passive income with reasonable risk, investing $6,000 in Slate Grocery REIT could be a great move. But if you’re aiming for maximum yield, you may need to diversify into other high-yielding stocks to reach your passive income targets.
