If you’re looking for a way to generate consistent passive income, dividend stocks can be a fantastic option. But instead of chasing the usual large-cap names, why not consider a mid-cap real estate investment trust (REIT) with a high yield and growth potential? Firm Capital Property Trust (TSX: FCD.UN) is one such stock that offers an attractive dividend, steady financials, and a solid outlook for long-term investors.
The stock
Firm Capital Property Trust is a Canadian REIT that specializes in a diversified portfolio of income-producing real estate, including multi-residential, industrial, and retail properties. Unlike some of the larger REITs that focus on one specific segment of the market, FCD.UN takes a balanced approach by investing across different property types and locations. This diversification helps reduce risk and smooth out cash flows. This is crucial for maintaining steady dividend payments.
One of the biggest attractions of FCD.UN is its generous dividend yield. The dividend stock currently offers an annualized distribution of $0.52 per unit, which translates to a yield of about 9% at the current stock price of $5.90. As you can see below, that creates quite a lot of passive income, around $73.45 per month!
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY | TOTAL INVESTMENT |
| FCD.UN | $5.90 | 1,695 | $0.52 | $881.40 | monthly | $10,000 |
But is it safe?
Firm Capital Property Trust has been quietly delivering strong financial results, showing its ability to sustain and even grow its dividend. According to its Q3 2024 earnings report, the trust posted net income of $9.4 million, compared to a loss of $2.4 million in Q3 2023. Adjusted Funds From Operations (AFFO) came in at approximately $4.8 million, reflecting a 14% increase from the previous year. Revenue also increased slightly year-over-year, despite the ongoing challenges in the real estate sector. This stability in earnings suggests that Firm Capital can comfortably continue paying its high-yield dividend without overextending itself financially.
Over the past five years, Firm Capital has proven itself as a reliable dividend payer with relatively stable stock performance. While the real estate sector has been under pressure due to higher interest rates, the dividend stock managed its debt well, maintaining a total debt-to-equity ratio of 109.7%, reasonable for a REIT. Additionally, FCD.UN’s price-to-book ratio of 0.70 suggests that the dividend stock is currently undervalued.
Future outlook
Looking ahead, Firm Capital has a few key factors working in its favour. It has a stable debt management strategy, meaning no sudden refinancing risks that could lead to dividend cuts. The dividend stock’s diversified property portfolio, which includes multi-residential, retail, and industrial properties, ensures that it isn’t reliant on any single sector. This helps cushion against downturns in any one area. Plus, if interest rates stabilize or start to decline in 2025, as many analysts expect, REITs like Firm Capital could see a boost in valuation, thus leading to higher share prices and continued strong income generation.
No investment is without risk, and FCD.UN is no exception. If rates remain high for an extended period, it could weigh on real estate values and borrowing costs. Plus, while Firm Capital has a well-diversified portfolio, a downturn in the commercial property market could impact rental income and valuations. As a mid-cap REIT, its stock doesn’t trade with the same volume as larger REITs like SmartCentres or RioCan, meaning price movements could be more volatile.
Bottom line
So, why should you consider investing $10,000 in Firm Capital Property Trust today? Because you’re getting a high yield at a discount. At a price-to-book ratio of just 0.70, the trust is trading below its asset value. The 9% dividend yield is well-covered by earnings, and the company’s strong operating margins suggest it will continue delivering passive income for years to come.
Investing in dividend stocks like Firm Capital Property Trust is one of the best ways to build passive income while maintaining exposure to real estate without the hassle of being a landlord. With a 9% yield, growing earnings, and a discounted valuation, this mid-cap REIT offers a compelling opportunity for income-focused investors.
