Are you looking for quality dividend stocks that pay out every single month? If so, I regret to inform you that the pool of choices available to you is relatively narrow. The monthly pay space is dominated by real estate investment trusts (REITs) and a handful of pipeline companies. In the past, I used to recommend First National Financial as a high quality monthly payer, but that company is about to get bought out by Brookfield and removed from the markets. So, the pickings are slimmer than they used to be.
Nevertheless, monthly pay stocks do exist. If we are willing to stretch the definition of “stock” just a little bit, then we find many monthly pay stocks in the REIT space. In this article, I’ll explore one Canadian REIT that has a lot of yield and a modest valuation.
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Killam Apartment
Killam Apartment REIT (TSX: KMP.UN) is a Canadian REIT that leases out apartments across Canada. It’s active in markets like Ontario, Nova Scotia, and Newfoundland. The REIT focuses heavily on renting to regular working Canadians; it isn’t a developer of “prestige” properties. The residential segment of the REIT market isn’t massively affected by the changing consumer landscape, as mall and hotel REITs are. So, it’s a relatively safe and stable part of the real estate market.
By many measures, Killam Apartment is a successful REIT. It is growing both its funds from operations (FFO) and adjusted FFO (AFFO). Its operating cash flow grew 11.3% over the last 12 months. The REIT has a 60% operating income margin and 58% FFO payout ratios. It has a diverse portfolio of properties from coast to coast. All of these characteristics make Killam Apartment a very attractive REIT.
Performance
Killam has been performing fairly well in recent years. Over the last 12 months, it grew its earnings, FFO and AFFO at the following rates:
- Earnings: 78%.
- FFO: 2.6%.
- AFFO: 2%.
These are pretty satisfactory growth rates for a REIT. And, as mentioned previously, in addition to growing, Killam is also a highly profitable REIT. Some of its key profitability metrics include:
- A 60% operating income margin.
- A 6.9% FFO yield.
- A 7.1% free cash flow (FCF) margin.
- A 19% return on equity (ROE).
- A 10.1% return on assets.
All of these metrics indicate that KMP.UN is a thriving, successful REIT.
Dividend income
Killam Apartment REIT has an above average dividend yield. It pays a $0.06 monthly dividend, which works out to $0.72 per year. At Wednesday’s closing stock price ($17.68), these dividends yield 4.1%, far higher than the TSX.
Valuation
Last but not least, we get to valuation. Despite all of its growth and profitability, Killam appears to be a modestly valued REIT, trading at the following multiples:
- 17 times AFFO.
- 14.4 times FFO.
- 9.7 times forward earnings.
- 5.7 times rental revenue.
These multiples are below average for the TSX today, indicating that investors who buy KMP.UN stock are not paying too much for what they get. Overall, Killam Apartment REIT is a compelling package.
