A 6.8% Monthly Dividend Stock: About $113 a Month on $20,000

Passive income has become essential in this uncertain, persistently inflationary macroeconomic environment. It provides financial stability and helps maintain your lifestyle despite rising prices. Monthly-paying dividend stocks offer an excellent means to earn passive income. However, dividends are not guaranteed and depend on the company’s financial performance, reliable cash flows, and management’s discretion. Therefore, investors should look for companies with well-established businesses that generate reliable cash flows, have a strong dividend payout record, and offer a healthy dividend yield.

Against this backdrop, let’s look at the fundamentals, growth prospects, dividend payout record, yield, and growth prospects of Automotive Properties Real Estate Investment Trust (TSX: APR.UN) to identify buying opportunities for income-seeking investors.

Automotive Properties REIT’s operations and financial performance

Automotive Properties REIT owns and operates 95 income-producing commercial properties spanning approximately 3.5 million square feet of gross leasable area. Its portfolio extends across six Canadian provinces and three U.S. states, with tenants primarily comprising established automotive dealerships, original equipment manufacturers (OEMs), and automotive service groups.

This established tenant base supports stable occupancy and predictable rental income. Moreover, contractual rent escalations and consumer price index (CPI)-linked adjustments help offset inflationary pressures while driving organic rental growth. This resilient business model has enabled Automotive Properties REIT to maintain consistent financial performance and pay distributions since 2015.

Meanwhile, Automotive Properties REIT delivered strong second-quarter performance in August, reporting a 22.8% year-over-year revenue increase, driven by acquisitions completed over the preceding four quarters and annual rent escalations. Same-property cash net operating income (NOI) also grew 2.2%, reflecting contractual rent increases. Meanwhile, net income and comprehensive income surged 61.6% to $18.1 million, supported by higher NOI, favourable non-cash fair-value adjustments on investment properties, and currency translation gains. Higher interest expenses and unfavourable fair-value changes in interest-rate swaps partially offset these gains. Adjusted funds from operations (AFFO), a key indicator of a REIT’s cash-generating capacity, climbed 18.6% to $14.9 million, highlighting the strength of its underlying operations.

Reflecting this performance, Automotive Properties REIT increased its monthly distribution by 2% to $0.07 per unit in August, offering a forward yield of approximately 6.8%. Its AFFO payout ratio improved to 78.3%, down from 80.7% a year earlier, providing greater coverage for distributions. The REIT ended the quarter with a debt-to-gross book value ratio of 47.5%. With its operating performance and distribution profile established, let’s examine APR’s growth prospects.

APR’s growth prospects

The highly fragmented automotive dealership and service markets in Canada and the United States present significant opportunities for Automotive Properties REIT to expand its portfolio. As dealerships face rising capital requirements and seek greater operational efficiency, smaller operators may increasingly turn to sale-and-leaseback transactions to unlock capital tied up in real estate while continuing to operate from their existing locations under long-term leases. This trend could create a broader pipeline of acquisition opportunities for the REIT, supporting portfolio growth and strengthening its recurring rental income and cash flows over time.

Automotive Properties REIT also has financial resources to support its expansion plans. It ended the quarter with $58 million in undrawn revolving credit facilities, $0.7 million in cash, and 11 unencumbered properties valued at approximately $166.7 million. These resources could provide financial flexibility to pursue strategic acquisitions, expand its income-generating asset base, and support the sustainability of its monthly distributions over the long term.

Investors’ takeaway

Automotive Properties REIT has rewarded investors with both consistent monthly distributions and capital appreciation, delivering a year-to-date total shareholder return of 17.7%. Despite this solid performance, the REIT remains reasonably valued, trading at forward price-to-earnings and price-to-book multiples of 11.5 and 0.9, respectively.

With its resilient business model, opportunities to expand its portfolio, attractive valuation, and high distribution yield, Automotive Properties REIT could appeal to income-seeking investors looking for reliable monthly income and long-term capital appreciation. At its current monthly distribution rate, a $20,000 investment could generate approximately $113.73 in monthly income, or about $1,364.73 annually, assuming the distribution remains unchanged.