When it comes to creating extra income, dividend stocks and, in particular, real estate investment trusts (REITs) are some of the best options out there. After all, these companies must pay out 90% of taxable income to shareholders. But when you dig deeper, you need a REIT that lasts. That is why today we’re looking at Auto Properties REIT (TSX: APR.UN).
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Steady income
First, let’s look at why it’s a steady income machine. APR recently increased its distribution, now at $0.82 each year! This comes to a yield of around 7.1% from its current share price of about $11.50 at writing. That’s far higher than most Canadian REITs, and it’s paid out monthly. Right now, a $7,000 investment could bring in an annual income of $497 or about $41.50 each month! That’s not bad for an auto property REIT.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY | TOTAL INVESTMENT |
|---|---|---|---|---|---|---|
| APR.UN | $11.53 | 607 | $0.82 | $497 | Monthly | $6,999 |
Furthermore, that payout is well covered. During the second quarter, adjusted funds from operations (AFFO) hit a ratio of 80.7%. This is a solid margin of safety for the REIT, especially with that distribution increase. And with many leases linked to fixed annual increases, organic growth is baked in. Add in more acquisitions, and the AFFO per unit should keep rising!
Fundamentally supported
Yet even more growth could be on the way, especially when it comes to that supported dividend. The dividend stock holds 80 properties across Canada and the United States at writing. Most of these are long-term, triple-net dealership and auto service leases. Dealers sign on to very long contracts and shoulder most of the operating costs. This can reduce landlord risk.
Furthermore, its acquisitions provide even more cash flow. It recently acquired $70.5 million in properties in Quebec and $16.8 million in Florida. This leaves more room to raise distributions over time, without straining the payout. Add in moderate debt, with 91% fixed at 4.36% on an average four-year term, and there’s a major cushion for this stock.
What to watch
Of course, no stock is perfect, APR included. The average debt maturity for the dividend stock is 2.4 years, which is on the low side. If rates remain elevated, then interest expenses could eat into AFFO. That’s the biggest risk for its distribution. Plus, the auto sector exposure can be riskier, exposed to tariffs and cyclical in nature.
That being said, right now is certainly a bright spot. The yield is well covered, cash flow is growing, and new acquisitions add even more reason to buy. The distribution, therefore, looks sustainable at this stage and sets it up for more future raises.
Bottom line
There’s no such thing as a risk-free dividend stock, and APR is included in that category. However, with coverage improving and debt largely fixed, the yield looks safer than many peers with similar payouts. So, if your monthly income priority is a safe and stable high dividend yield, APR certainly fits the bill.
