This Canadian Stock Is Down 31% and Nearly Perfect for Long-Term Investors

Here’s why this reliable Canadian stock with a dividend yield of more than 4.2% is one of the best long-term investments you can make today.

Daniel Da Costa

Daniel joined the Motley Fool Canada team in 2019 with years of experience in banking and investing. Growing up the son of a proprietary stock trader and educator, Daniel’s always found joy in helping Canadians to improve their financial situations. With the Motley Fool, Daniel sees an even more rewarding way to impact Canadians positively. A student and great admirer of Warren Buffett, he’s always looking for investments offering growth at a reasonable price. Outside of finance, Daniel enjoys spending his time with family, sailing, and watching Formula One.

Published April 5, 10:00 am EDT

| More on: CAR.UN

Key Points

Canadian Apartment Properties (TSX:CAR.UN) trades at ~16.1x forward AFFO — roughly 31% below its 10‑year average — marking a sizeable valuation discount.
As a $5.5B, highly diversified residential REIT with professional management and a ~4.2% monthly, sustainable yield, it offers predictable cash flow and scale individual landlords can’t replicate.
The pullback is largely rate‑driven; with fundamentals intact and stronger balance‑sheet discipline, the current price presents a buy‑and‑hold opportunity for long‑term investors.

When high-quality Canadian stocks trade at a steep discount, it creates significant long-term opportunities for investors.

And right now, that’s exactly what’s happening with Canadian Apartment Properties REIT (TSX:CAR.UN).

Based on its current valuation, the stock is trading at roughly 16.1 times its forward adjusted funds from operations (AFFO), which is about a 31% discount to its 10-year average multiple of 23.5 times.

That’s a massive discount for a business that hasn’t fundamentally changed all that much and continues to be a reliable business you can buy and hold long-term.

So, the question isn’t really why the stock is down; it’s whether this is an opportunity to take advantage of.

Let’s look at what makes the Canadian stock such a reliable investment for long-term investors.

dividend stocks are a good way to earn passive income — Source: Getty Images

Why is CAPREIT one of the best long-term stocks that Canadians can own?

One of the biggest reasons why CAPREIT is a top pick for investors across Canada is how simple the investment is. If you want exposure to Canadian residential real estate, this is easily one of the most straightforward ways to get it.

Instead of owning one or two rental properties and taking on all the risk that comes with that, you’re getting exposure to tens of thousands of units across multiple regions and provinces.

That level of diversification is something most individual investors just can’t replicate on their own. And it matters because it significantly reduces risk for investors. With CAPREIT, you’re never relying on a single tenant, a single property, or even a single city.

You own a massive portfolio, and on top of that, you’re also getting professional management. That may not sound like a huge deal at first, but it’s another massive advantage over owning real estate yourself.

Being a $5.5 billion company means that CAPREIT has the scale to operate efficiently, optimize its portfolio over time, and access financing at much better rates than individual investors, which is especially important.

Because while higher interest rates have been a headwind for the stock recently, they also highlight one of CAPREIT’s biggest advantages. It can access capital in ways that individual investors simply can’t, which, over the long term, helps drive more consistent and predictable growth for the Canadian stock.

The income the stock generates is another reason why you can buy and hold CAPREIT for the long haul, especially while it trades this cheaply. In fact, its yield now sits at more than 4.2%, well above its 10-year average yield of 3.1%.

And that distribution is not only paid monthly, but it’s also sustainable since the real estate investment trust owns residential properties that generate consistent and reliable cash flow. Plus, you can hold it in a TFSA, which makes that income even more valuable over time.

Why the recent drop looks like the perfect opportunity

The main reason CAPREIT is trading at a discount right now comes down to interest rates.

As rates moved higher, REIT valuations across the board came down since higher rates increase borrowing costs and make income-focused investments less attractive relative to safer alternatives.

However, that pressure has been much more about valuation than any temporary impact on the underlying business.

Even in this environment, though, the Canadian stock is still generating stable cash flow, still operating in a sector with strong long-term demand and still in a position to grow over time, even if that growth is a bit slower going forward as immigration numbers slow and rates stay semi-elevated.

In fact, you could argue that this has already been the riskiest period for the business.

Management has had to adjust to higher borrowing costs, be more disciplined with capital allocation, and focus more on balance sheet strength. And going forward, that likely leads to a more conservative and more sustainable growth strategy.

At the same time, the current macro environment is still pretty uncertain. Even before the war began, every year, it seems like there are new recession concerns or economic slowdowns being priced in.

And in these environments, businesses that generate reliable, recurring cash flow become even more valuable. That’s why CAPREIT looks like the perfect Canadian stock to buy for long-term investors, especially while you’re getting it at a valuation that’s well below where it’s traded historically, which is exactly the kind of opportunity to take advantage of.