Monthly Dividend Stock In Focus: Granite Real Estate

Up to date on Might fifth, 2022 by Quinn Mohammed

Worldwide REITs may very well be a useful possibility for traders eager about diversifying their portfolios. There are various worldwide Actual Property Funding Trusts primarily based outdoors the U.S. with high quality enterprise fashions and excessive dividend yields.

One instance is Granite Actual Property Funding Belief (GRP.U) (GRT-UN.TO), a REIT primarily based in Canada. Not solely does Granite have a confirmed enterprise mannequin, but it surely additionally pays a strong 3.4% dividend yield, which is about twice the extent of the S&P 500.

Granite additionally pays its dividend month-to-month; a extra engaging dividend schedule than REITs which pay dividends quarterly.

Granite is one in every of solely 50 shares that pays month-to-month dividends. You may entry the complete database of month-to-month dividend shares (together with vital monetary metrics resembling price-to-earnings ratios and dividend yields) by clicking on the hyperlink under:

Granite is listed in each Toronto and New York, and for this text, we’ll be utilizing the New York itemizing and US {dollars}.

This text will define Granite’s enterprise mannequin and focus on its deserves as a dividend inventory.

Enterprise Overview

Granite owns and manages predominantly industrial actual property properties in North America and Europe. It transformed to a REIT on January 3, 2013, and has remodeled itself right into a leaner, extra environment friendly belief, with higher-quality property.

Supply: Investor presentation

Over time, Granite has grown from a smaller, much less useful portfolio that was virtually totally dependent upon one tenant (Magna), to a diversified, a lot bigger portfolio with considerably increased common property values. The belief has undergone a metamorphosis in recent times to succeed in these objectives, and it’s clear that effort has paid off.

Magna is now 22% of the portfolio, and the portfolio as an entire is meaningfully extra diversified between tenants and property varieties.

The belief’s income-producing portfolio include Multi-Function, Logistics and Distribution Warehouses, and Particular-Function amenities. It owns a complete of 55.9 million sq. toes unfold throughout 134 properties in Europe, Canada, and the U.S. Mixed, these properties have a carrying worth of almost $8 billion.

Supply: Investor presentation

Granite is current solely in nations with little or no geopolitical threat, and in properties and industries with robust long-term fundamentals. It’s nonetheless very closely concentrated within the US and Canada, with somewhat greater than two-thirds of its properties sq. footage situated in North America.

Nonetheless, its worldwide publicity gives a diversifying element to the belief’s outcomes. Granite focuses on properties that assist e-commerce improvement and are situated strategically to assist such companies in the very best markets.

Supply: Investor presentation

Granite seeks out areas which have proximity to main cities and have favorable demographics, together with main infrastructure, and out there labor swimming pools. As well as, it buys properties which are already fashionable, that means capital expenditure wants are low, with tenants which have excessive switching prices.

These traits imply that Granite is selecting solely probably the most favorable properties to personal with long-term tenants which have the very best likelihood of thriving in varied financial climates. Lastly, it focuses on the big shift to e-commerce, with a specific concentrate on meals and prescribed drugs.

In brief, Granite is betting that these traits will gas its future development, and outcomes have actually supported that notion.

Progress Prospects

Granite’s outlook is constructive from a basic perspective, with the belief within the midst of a metamorphosis. Granite is within the ultimate phases of its years-long transformation by which it’s optimizing its value of capital, leverage on the stability sheet, and reaching what it considers a saturation level in important goal markets.

The belief went by means of a interval of great transition in recent times, switching out its CEO, board, and management group. In the present day, the belief is concentrated on remodeling its portfolio by means of the sale of non-core property, enhancing its presence within the U.S, and making purchases in choose European markets.

Granite delivered on its prior said objective of boosting the portfolio to greater than 40 million sq. toes and carrying worth of greater than $4 billion, and is now approaching $8 billion, so we consider the best ranges of development are probably behind the corporate. That mentioned, future development might be comprised primarily of rental will increase, and selective acquisitions which are accretive to FFO. Acquisitions make up a big a part of the corporate’s development technique, as they’ve accomplished roughly $2.0 billion in acquisitions over the past two years in key places.

Granite seems to have achieved its development objectives sooner than anticipated, and because of this we count on incremental funding to gradual considerably within the coming years. There may be nonetheless a improvement pipeline in progress, with some properties in Europe and North America. Nonetheless, Granite’s transformative strikes have largely been accomplished.

Tendencies for e-commerce stay overwhelmingly constructive and given the affect on bodily retailers of COVID-19, it seems the pattern in the direction of e-commerce has solely accelerated, which is a constructive for Granite. It’s due to this fact concentrating property that match its funding standards to capitalize.

Granite’s development outlook is favorable, on condition that it ought to proceed to see increased lease costs, in addition to a bigger funding guide by means of acquisitions and improvement.

Dividend Evaluation

Granite presently pays a month-to-month dividend of $0.2583 per share in Canadian {dollars}, which equates to ~$0.20 month-to-month in US {dollars}. The newest dividend improve got here in December of 2021, within the quantity of three.3%.

On an annualized foundation, the present common dividend fee is $3.0996per share in Canadian forex. In U.S. {dollars}, this works out to roughly $2.43 per share. This equates to a 3.4% yield.

It must be famous that if traders personal the U.S. itemizing, the dividend might be topic to forex threat as it’s translated from Canadian {dollars} to U.S. {dollars}. The dividend to U.S. traders will rely partly upon prevailing alternate charges, which presently stand at $1 CAD = $0.78 USD. One other vital consideration for investing in worldwide shares is withholding taxes.

Be aware: As a Canadian inventory, a 15% dividend tax might be imposed on US traders investing within the firm outdoors of a retirement account. See our information on Canadian taxes for US traders right here.

Granite’s 3.4% dividend yield is supported with underlying money circulate. Primarily based on adjusted FFO for 2021, Granite’s payout ratio is 80%. That’s about in keeping with earlier years and is taken into account protected within the REIT universe.

We consider Granite goes to develop FFO within the coming years and scale back the payout ratio, so along side the present truthful payout ratio, we see the distribution as protected.

Closing Ideas

Traders can obtain excessive ranges of earnings and diversification advantages by contemplating REITs primarily based outdoors the US. Granite REIT is an effective instance of a global REIT with a high-quality enterprise mannequin, and a good dividend yield of three.4%.

The belief has largely accomplished its transformation effort that diversified its portfolio, decreased threat, and enhanced its earnings development prospects. We see this as supportive of future dividend will increase, because the payout ratio has been decreased considerably. Consequently, Granite stays a sexy possibility for traders in search of month-to-month dividends and a 3%+ dividend yield.