Do you want to get consistent, monthly dividends in your Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA)?
If so, you should take a look at real estate investment trusts (REITs).
REITs are pooled real estate portfolios that trade on the stock market. They typically hold apartment buildings, office buildings, warehouses, or farmland. Their dividend yields are typically high, and their payouts are usually made monthly. This fact makes REITs good holdings for investors who want high and frequent income.
In this article, I will explore a cheap apartment REIT with a 4.46% yield that pays dividends each month.
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Killam Apartment REIT
Killam Apartment REIT (TSX: KMP.UN) is a Canadian apartment REIT that owns properties across the country. The REIT owns properties from British Colombia to Newfoundland, making it one of the most geographically diversified residential REITs in Canada.
KMP.UN’s geographic diversification is an important advantage. For years, markets like BC and Ontario saw massive price appreciation; just recently, these markets slowed down. This year, Ontario sales prices have declined 5.1%, while in BC, prices have flatlined on lower sales volume. By contrast, some of Canada’s historically neglected markets, such as Newfoundland and Nova Scotia, have seen continued price appreciation.
Unlike many of Canada’s biggest REITs, which focus on Canada’s large and now struggling markets, Killam has a presence nation-wide. This year, that fact is proving an advantage.
Strong performance
Killam Apartment REIT has been performing well in recent years. Some of its trailing 12-month growth and profitability metrics included the following:
- 5.8% revenue growth
- 2% adjusted funds from operations (AFFO) growth
- 75.5% earnings growth
- 7.55% growth in earnings before interest, tax, depreciation and amortization (EBITDA)
- A 61% operating income margin
- A 9.5% return on assets
- A 141% net income margin
Broadly, these metrics portray a company that is growing and highly profitable, generating substantial income from its operations. I should say that the ultra high net margin — 141% — is largely due to some non-recurring factors. Net income higher than revenue cannot be maintained long term, by definition. Nevertheless, the metrics above collectively point to strength in Killam’s core business.
Dividend potential
As mentioned previously, Killam Apartment REIT has a high dividend yield and a monthly payout schedule. The REIT’s dividend is $0.06 per month, or $0.72 per year. At today’s unit price of $16.15, that provides a 4.45% dividend yield. So, if you invest $50,000 in KMP.UN, you should get $2,230 per year back in dividends. See the math below.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| Killam Apartment REIT | $16.15 | 3,096 | $0.06 per month ($0.72 per year) | $185.76 per month ($2,229 per year) | Monthly |
Valuation
Having explored Killam Apartment REIT’s performance and dividends, we can now move on to valuing the stock. At today’s price, it trades at the following:
- Nine times forward earnings
- 0.76 times book value
- 15 times AFFO
- 14 times FFO
- Five times sales
These are relatively low multiples even by REIT standards, and dirt cheap compared to the Canadian market averages. So, Killam Apartment stock may be a decent value today. The fact that its dividend comes in each and every month is a nice bonus, too.
