Dirt cheap might be an exaggeration in a bull market where most dividend stocks are trading at their all-time high. If you mean the price is cheap, the ones trading at their lows have fallen because the company couldn’t sustain the dividends.
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Is price the determinant of dirt-cheap stocks?
Dividend stocks are trading near their all-time high in Canada, except for two problematic sectors – telecom and short-term loans. Both sectors are seeing slimming margins and rising debt. While I have been cautious around the two sectors, one dividend giant caught my attention after a 9.4% drop in August. The stock is Slate Grocery REIT (TSX: SGR.UN).
It is one of the most boring stocks in real estate. There is never much exciting news or many announcements for Slate Grocery REIT per se. And that is what makes it a good investment. As George Soros puts it, “Good investing is boring.”
If this grocery REIT never has much news, then why did the unit price fall 9.4% in a month? That’s a pretty steep fall.
Why did this Canadian dividend stock fall?
Firstly, Slate Grocery REIT’s leverage is pretty high. With a 5% weighted-average interest rate and 55% net debt-to-gross book value, any signs of an interest rate hike make investors cautious. Although 90.2% of its debt carries a fixed rate, the 10% exposure to variable interest keeps its unit price sensitive to interest rate momentum.
Secondly, the second and third quarters are seasonally low for Slate Grocery REIT given the timing of rent renewals. Lastly, commercial real estate has been facing a bearish trend amidst a weak macroeconomic backdrop. While these macroeconomic factors have put several commercial REIT’s in the red and forced a dividend cut, Slate Grocery REIT withstood the downward pressure. Although the REIT has not slashed dividends, it surely is walking on thin ice.
Is Slate Grocery REIT’s dividend built to last?
A good measure to know whether Slate Grocery can sustain its dividend is to look at its payout ratio as a percentage of funds from operations (FFO). The FFO is the rental income it earns from its properties. This is relatively stagnant, hovering in the 82–86% range.
The concern is the Adjusted FFO (AFFO). This amount includes any adjustments for straight-line rental revenue and revenue-sustaining capital, leasing costs, and tenant improvements. These costs vary every quarter as they are incurred when leases expire and are renewed. While the REIT incurs the cost, it is recovered through higher renewal spreads, which were 16.7% in the second quarter of 2026.
| Period | AFFO Payout Ratio | FFO Payout Ratio |
| Q4 2021 | 97.4% | 82.4% |
| Q4 2022 | 96% | 78.8% |
| Q4 2023 | 99.5% | 81.1% |
| Q4 2024 | 109.8% | 86.0% |
| Q4 2025 | 110.8% | 86.9% |
While there is a risk of a dividend cut, the 7.5% annual dividend yield provides an adequate risk premium. The risk is calculated based on its major tenants, which are grocers like Kroger and Walmart. The defensive business of tenants lowers the downside risk.
Since Slate Grocery has properties in the United States, dividends are also paid in US dollars. However, Canadian investors receive them in Canadian dollars, and they benefit from exchange rate fluctuations. Despite the 100% plus payout ratio, Slate Grocery’s dividends are built to last, as adjusted costs are temporary and will normalize with higher rent from renewals.
How to invest in this stock
The Slate Grocery REIT’s high yield allows you to lock in higher passive income and diversify your payouts beyond Canada. The escalating trade tensions between the United States and Canada will keep dollar fluctuations high, creating opportunity for higher Canadian dollar payouts. It is a perfect dividend stock for satellite portfolios that invest in high-risk, high-return opportunities.
The chances of a REIT sustaining its dividends are higher, but you cannot rule out the possibility of a cut. Once that risk fades, the unit price could rise again.
