A high yield is one of the first things that income investors get drawn to in a stock. While that’s not a bad thing, it’s not the only factor that investors should be paying attention to. A 7% dividend stock can be attractive, but it can also be hiding risks.
In short, a great payout is only great if that monthly payout is sustainable.
There’s no shortage of great income-producing stocks on the market. That includes one 7% dividend stock in particular that should be on the radar of investors everywhere.
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Meet Slate Grocery REIT
Slate Grocery REIT (TSX: SGR.UN) is one of Canada’s more popular REITs. The company owns a portfolio of grocery-anchored properties across the U.S. That focus on essential retail within the U.S. market gives investors two unique advantages that are key to maintaining that 7% dividend.
Slate’s portfolio consists of over 110 grocery-anchored sites across major U.S. metro markets. In the most recent quarterly update, Slate reported that those sites boast an impressive 93% occupancy rate.
The grocery-anchored part of the business is noteworthy. Unlike discretionary retail, grocery stores continue providing essential products to investors regardless of how the economy fares. Even when times are tough, people still need to buy food.
This helps draw repeat foot traffic to stores, which in turn supports the smaller, secondary tenants usually part of the same property. Those secondary tenants offer similar necessity-based services, drawing in their own traffic that is complementary to the grocery-anchor tenant.
Those secondary tenants can include banks, pharmacies, doctor’s offices and other businesses that serve the community.
Overall, this helps to give Slate’s tenant mix a more defensive tilt, and it’s evident in results.
In the most recent quarter, Slate completed over 569,000 square feet of leasing. The company also reported renewal rents signed at 16.7% above expiring levels, while new leases were signed with rents 41% above the comparable average in-place rent.
The strong results and demand for those properties give Slate long-term growth potential.
What about that 7% dividend stock?
One of the main reasons why investors turn to Slate is for the monthly distribution that the REIT offers. As of the time of writing, Slate offers an attractive 7.2% yield. That handily makes the REIT one of the better-paying options on the market.
It also means that investors with just $5,000 to invest in Slate can create a seed portfolio that will continue building itself over decades. Specifically, that initial investment will produce an income of just over $360 each year.
That’s not enough to retire on, but it is enough to generate a few shares each month from reinvestments alone. Over a longer period, that can compound into a much larger income-producing position in an income portfolio.
Slate is more than its yield
Slate’s 7% dividend is the first thing investors will notice. Fortunately, that’s not the only factor to consider when deciding whether to buy the REIT for a well-diversified portfolio.
Slate’s focus on necessity-based retail that consumers need irrespective of how the market moves is important to note. Strong occupancy and continued leasing growth give investors something beyond the payout to watch.
While no stock is without risk, Slate offers a good mix of income, defensive appeal, and growth potential.
In my opinion, this makes the REIT a great addition to consider as part of any larger, well-diversified portfolio.
Buy it, hold it, and watch your income grow.
