Is This 12.2%-Yielding Stock too Good to Be True?

Allied Properties REIT’s 12.2% yield looks tempting, but investors should weigh weakening cash flow against its improving leasing and debt-reduction efforts.

Jitendra Parashar

Author Bio Jitendra Parashar is a financial journalist who has been writing for The Motley Fool Canada since June 2020. With more than 13 years of experience in financial journalism, equity research, and market analysis, he helps investors understand market developments and identify long-term investment opportunities. Before joining The Motley Fool Canada, Jitendra spent several years at Market Realist covering U.S. equities, major economic developments, and developments in the automotive and technology industries. He also worked in commodity and currency research at brokerage firms, gaining insight into how economic trends, central bank decisions, and geopolitical events influence financial markets. Jitendra writes for beginner investors, dividend seekers, and Canadians looking to build wealth over the long term. He also contributes to the daily TSX Today series, explaining key Canadian market developments and highlighting news investors should watch. Based in India, Jitendra follows Canadian and U.S. markets closely. Outside of work, he enjoys travelling in the Himalayas, street and nature photography, and exploring programming and artificial intelligence. Education MBA in Finance and International Business Bachelor's degree in Journalism Areas of Expertise Canadian and U.S. financial markets, long-term equity investing, dividend investing, macroeconomic and geopolitical trends, automotive stocks, emerging technologies, and artificial intelligence. Social Media Profiles LinkedIn Muck Rack Favorite Investment Quote “Simplicity is the master key to financial success.” — John C. Bogle

Published October 1, 9:15 pm EDT

There is a big reason experienced dividend investors usually get nervous when a stock’s yield moves into double digits. Although a payout with a double-digit yield can create a lot of income, it can also disappear quickly if the business can’t support it.

Let’s take a closer look at a Canadian dividend stock that’s currently yielding 12.2% and find out whether its fundamentals are strong enough to support that dividend payout in the long run.

workers walk through an office building — Source: Getty Images

Why Allied’s yield is so high

The stock I’m talking about here is Allied Properties Real Estate Investment Trust (TSX: AP.UN). This real estate investment trust (REIT) owns and operates urban workspace in major Canadian cities, with a large presence in Toronto and Montréal. Its portfolio includes office, retail, and flexible workspace properties.

After tanking by nearly 66% over the last year, AP.UN stock currently trades at $7.15 per share with a market cap of about $1.3 billion. That steep decline has pushed Allied’s annualized yield to 12.2%.

That massive selloff is mainly due to pressure on the business. In the second quarter, Allied’s rental revenue fell 3.1% year-over-year (YoY) to $140.5 million. Its operating income dropped 12.7% YoY as non-renewals, dispositions, lower development fee income, decapitalized operating costs, and a retroactive property tax assessment all weighed on its results.

The payout is where the risk shows up

The REIT’s funds from operations (FFO) dived 31% YoY to $47.5 million in the second quarter, while its adjusted funds from operations (AFFO) dropped 46.9% YoY to $33.7 million.

More importantly for income investors, Allied’s second-quarter AFFO payout ratio reached 104.5%. Its distributions are expected to remain above cash available to Allied in the near term, although that gap should improve as asset-sale proceeds reduce debt and lease-up activity supports the portfolio. For now, the REIT plans to maintain monthly distributions at an annualized rate of $0.72 per unit.

In this case, leverage is another issue to watch. Last quarter, Allied’s net debt-to-annualized adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio stood at 12 times, while its interest coverage ratio was 1.9 times. But the company is targeting a mid-11 times net debt-to-EBITDA ratio by year-end.

What could turn the story around

Even with those risks in the near term, investors with the risk appetite may want to consider this high-yield stock today.

Notably, Allied ended the second quarter with occupied and leased area of 84.4% and 86.7%, respectively, both ahead of expectations. Its total leasing pipeline increased 11% during the quarter and was up 33% from the start of 2026.

Meanwhile, its focus on asset sales could also help. The company completed $243 million of dispositions by the end of the second quarter, with another $78 million firm. That brought its secured year-to-date proceeds to about $321 million. With this, the REIT remains on track toward roughly $500 million of 2026 dispositions, and it plans to use those proceeds to repay debt.

That’s why for investors comfortable with turnaround risk, Allied’s beaten-down unit price and 12.2% yield make its stock interesting today. Still, with AFFO under pressure and payout coverage stretched, that income comes with a significant risk as its recovery now depends heavily on better leasing, successful asset sales, and continued deleveraging.