Are you interested in earning substantial dividend income each and every month?
In the world of conventional stocks and stock ETFs, such a thing is not common. Conventional stocks usually pay dividends quarterly. Some small pipeline stocks and financials have monthly payout schedules, but they’re the exception rather than the rule. In general, large-cap Canadian equities have quarterly payout schedules.
So, if you’re looking for monthly dividends, where do you turn?
Real estate investment trusts (REITs)!
A REIT is a type of “stock” that trades on the market just like other companies, but is subject to certain tax and distribution rules. In order to qualify for the special tax treatment that comes with being a REIT, a company has to pay out a high percentage of its earnings as dividends. Because real estate projects collect monthly income, REITs usually pay monthly as well.
In this article, I’ll explore one Canadian REIT with a 4.2% yield that cuts you a cheque every single month.
Granite REIT
Granite Real Estate Investment Trust (TSX: GRT.UN) is a Canadian industrial REIT. It owns big box warehouses, distribution centres and manufacturing facilities across North America and Europe. It rents space in its facilities to tenants that need it, such as manufacturers and e-commerce companies. About 74% of Granite’s business comes from e-commerce companies, which supply steady lease revenue to the company. As a result, GRT.UN enjoys steady results and high occupancy (98.1%).
Financial performance
When it comes to financial performance, GRT.UN has been doing pretty well. In the trailing 12-month period, its revenue grew 8.7%, its funds from operations (FFO) grew about the same amount, and its adjusted funds from operations (AFFO) grew 7.2%. On a five-year compounded annual growth rate (CAGR) basis, the company’s revenue has grown 11.7,% and its free cash flow has grown 24%.
In addition to doing a reasonable amount of growth, Granite REIT is also quite profitable. In the trailing 12-month period, it had a 52.5% AFFO margin, a 73% operating income (EBIT) margin and a 73.2% EBITDA margin. It also had a 6.5% return on equity and a 3.3% return on capital. Not bad metrics here at all.
Dividend potential
Turning now to the part you are likely most interested in:
Granite REIT’s significant dividend potential.
GRT.UN currently pays a dividend of $0.30 per unit per month. That works out to $3.55 per year. The REIT cost $84.43 at the time of this writing. So, we have a 4.2% yield for GRT.UN. If you invest $100,000 in GRT.UN, you should get $4,200 per year in dividend income. Here’s the math on that:
Valuation
Last but not least, valuation.
Granite REIT is pretty cheap by some metrics, trading at 0.9 times book value, 16 times AFFO, and 13.6 times FFO. At these multiples, the REIT doesn’t even need to grow its earnings/funds from operations to be worth the investment. Yet historically, the REIT has grown its earnings, and its strong industry niche provides some hope that that can continue into the future.
Foolish takeaway
The big takeaway on Granite REIT is that it’s a strong company trading at a sensible valuation. It has a high yield, and pays dividends every month. If you’re an income hungry Canadian investor, GRT.UN is worth looking into.