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.

Key Points
  • Allied Properties REIT offers a 12.2% annualized yield after its unit price fell about 66% over the last year.
  • The REIT’s second-quarter AFFO dropped 46.9% YoY, and the AFFO payout ratio reached 104.5%, keeping distribution coverage in focus.
  • Improving leasing and a roughly $500 million disposition program could support deleveraging and a potential longer-term recovery.

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.

Fool contributor Jitendra Parashar has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Dividend Stocks

happy woman throws cash
Dividend Stocks

The Ideal TFSA Stock: A 5.9% Yield-Paying Constant Cash

Enbridge’s predictable cash flows, substantial growth pipeline, and long history of dividend increases underpin its long-term investment appeal for TFSA…

Read more »

woman gazes forward out window to future
Dividend Stocks

Dividend Income in Retirement: What Could Go Wrong?

Dividend investing is a proven way to create income in retirement but you must know the risks you need to…

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Dividend Stocks

A 5% Monthly Payer I’d Buy for My TFSA: About $100 a Month on $24,000

Canada’s largest residential landlord offers a high yield, reliable monthly income, and a tax-sheltered foundation for TFSA investors.

Read more »

Two seniors walk in the forest
Dividend Stocks

Can Dividends Replace a Paycheque in Retirement?

Can dividends in retirement replace your paycheque? Explore how Scotiabank, RioCan REIT, and Fortis can help build a steady retirement…

Read more »

Sliced pumpkin pie
Dividend Stocks

The Fees That Quietly Eat Into a Small Investment

Many funds charge outrageous fees, but broad market index funds like the iShares S&P/TSX Capped Composite Index ETF (TSX:XIC) usually…

Read more »

dividends grow over time
Dividend Stocks

The U.S. Dollar is Rising Again: Here’s What VFV Investors Should Know

VFV investors receive both U.S. equity returns and currency translation.

Read more »

businessmen shake hands to close a deal
Dividend Stocks

A Canada-India Trade Deal Could Be Big for Infrastructure: Is WSP Stock a Buy?

India could require roughly US$840 billion of urban infrastructure investment over 15 years.

Read more »

woman considering the future
Dividend Stocks

How Much Would You Need to Invest to Earn $100 a Month in Dividends?

These two monthly-paying dividend stocks can boost your passive income in this uncertain macroeconomic environment.

Read more »