What kind of a stock would you buy with confidence in any market, be it a fearful market or a greedy market? A stable stock that has low debt, growth opportunities, and robust management. Even the most risk-taking investor becomes risk-averse in an uncertain market because the focus moves from growth to survival.
This Canadian dividend stock has what it takes to survive in a downturn
Canada’s real estate market is a good dividend payer, especially in the retail segment. However, the pandemic affected retail REITs and forced them to slash dividends. One land parcel that continues to remain in demand and grow in an export-led economy like Canada is warehousing and distribution storage. These places may not be in prime locations and need relatively lower maintenance than residential property, retail shops, and offices.
And most importantly, warehouses and distribution stores will always be in demand. In fact, their demand is growing with e-commerce and a shift in the supply chain.
Granite REIT (TSX:GRT.UN) has a portfolio of warehouse, e-commerce, and special-purpose properties worth $9.1 billion in North America and Europe. It earns 27.4% of its rental revenue from Magna International. This may look like a concentration risk, but Granite REIT has significantly reduced this contribution from 93% in 2012 by expanding its portfolio.
The REIT has maintained lower debt than its peers, with Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) being 7 times its total debt. Moreover, its EBITDA is 5 times its annual interest expense, and it spends 60% of its operating cash flow on dividend payouts. These ratios show the REIT has lower leverage, which increases its financial flexibility, making it a buy.
You can lock in a 4.4% yield with dividend growth of 3–4% annually. The REIT’s 15-year dividend growth history is what makes it a buy in every market.
This Canadian dividend stock has what it takes to thrive in every market
Another reason to buy Granite REIT at the dip is its potential to grow. Granite REIT buys new properties at strategic locations with low capital expenditure requirements. It also looks to redevelop properties and keep up with e-commerce property trends such as multi-level fulfillment centers and cold storage. All this helps it grow cash flow and EBITDA. The REIT is positioned to benefit from the global supply chain shift and e-commerce growth.
An assured passive income that is adjusted for inflation
You could consider investing regularly in Granite REIT. A $100–$300 investment every month can help you accumulate income-generating units. These units will keep growing income alongside inflation. Since the payout is monthly, you can consider Granite as a good addition to your passive income portfolio.
Like Granite, you can add some higher-risk stocks like SmartCentres REIT and Freehold Properties to your passive income portfolio. They can inflate your income with their high yield in the short term. In fact, you can use the dividend income from Granite to make risky investments. If you reinvest dividends within the Tax-Free Savings Account (TFSA), you can do so tax-free. There would be no dividend or capital gains tax.
