When building an income-focused portfolio, finding reliable monthly payers is key. One standout option is Slate Grocery REIT (TSX: SGR.UN), offering an attractive yield of 8.7%. This real estate investment trust (REIT) focuses on U.S. grocery-anchored properties, providing consistent cash flows and potential for capital appreciation.
Source: Getty Images
Why Slate works
Let’s have a look at Slate Grocery REIT as a potential pick for an income-focused investment portfolio. For folks looking for regular income, finding dividend stocks that pay out cash on a monthly basis can be pretty appealing. As of writing, Slate Grocery REIT has been providing a monthly distribution of $1.20 per unit.
When you add that up over a year and compare it to the recent price of the units, it works out to an annual yield of about 8.7%. This regular income stream comes from their focus on owning properties in the United States that are anchored by grocery stores. These types of retail properties tend to be fairly stable, as people need groceries no matter what the economic climate is like. This stability can lead to consistent cash flow for the REIT, which, in turn, supports those monthly payouts.
Staying strong
Looking back at how the REIT has been doing financially, their report for the last quarter of 2024 showed some positive signs. It brought in US$53.1 million in rental revenue. This was a bit of an increase compared to the year before. The net operating income, which is the money left over after operating expenses but before things like interest and taxes, also saw a rise to US$41.5 million. What’s particularly interesting is that the income from the same properties it’s owned for more than a year went up by almost 5%. This suggests it’s doing a good job of managing its properties and potentially increasing rents.
The occupancy rate across properties was quite steady at almost 95% at the end of December 2024. When it signed new leases, it was able to get rents that were significantly higher than what the previous tenants were paying, indicating there was good demand for spaces. Furthermore, the average rent it’s currently charging per square foot is still below the average market rate in those areas. This could mean there’s still room to increase rents in the future.
More to come
From a financial health perspective, Slate Grocery REIT seems to be in decent shape. During 2024, it managed to refinance a significant amount of debt, about US$633.5 million, and did so on terms that were favourable. This suggests that lenders have confidence in the business. Its debt level, compared to the value of its properties, seems manageable, and it’s earning enough to comfortably cover its interest payments.
For those who are focused on the income the REIT provides, it’s worth looking at payout ratios. In the fourth quarter of 2024, the percentage of their funds from operations (FFO) paid out as distributions was 86%. Another measure, adjusted funds from operations (AFFO), showed a payout ratio above 100%. While a payout ratio above 100% might raise some eyebrows, the REIT’s consistent cash flow from those essential retail properties could provide some reassurance about their ability to maintain those distributions.
Bottom line
Including a REIT like Slate Grocery in an income-focused investment plan could offer a few advantages. Its focus on grocery-anchored properties can provide a degree of stability, even when the broader economy faces challenges. The fact that it pays out income monthly can be attractive for those looking for a regular cash flow. Plus, the potential for rent increases in the future could also lead to some capital appreciation over time.
So, to sum it all up, Slate Grocery REIT appears to be a noteworthy option for investors who are prioritizing income. Its consistent monthly distributions, the strength of its property portfolio, and sound financial management make it a consideration for a well-rounded income portfolio.
