Earn a 5.9% Yield by Dividend Investing on a Monthly Basis
Dividend Investing from a Unique Real Estate Company
Dividend investing is a great method for generating income. Most of the time, the same large-cap companies come to mind, which is not the best thing for investors. That’s because the results will be the same as everyone else, given that it’s the same companies are owned.
There are many unknown companies that pay a dividend and have a great business model. Owning a company that many other investors do not is great, as the company could get recognized by investors or a brokerage house and see a boost in the price. And until this happens–and even if it doesn’t–a dividend is being paid, which adds to the bottom line of investors.
One such company that income investors should not ignore is Granite Real Estate Investment Trust (NYSE:GRP). The market cap for this company is $1.5 billion, which may be one of the reasons why it is not widely heard of.
The current dividend yield for GRP stock is 5.9%, with the shares trading at $33.15. The dividend is paid on a monthly basis in the amount of $0.2170. Since Granite became a public company in 2013, the dividend has seen an increase in each of the following years.
The dividend is reviewed in December of each year, and in 2016, the dividend continued its streak of seeing an increase. There is the possibility of more dividend hikes because the payout ratio is approximately 68% of cash flow.
High Barriers to Entry
Granite’s portfolio features 94 income-producing properties around the world. The company’s current 35 tenants are spread across many different industries, such as automotive warehouses and retail distributions centers, and include the likes of Kate Spade & Co (NYSE:KATE), GameStop Corp. (NYSE:GME), and General Motors Company (NYSE:GM). The contracts currently in place are for an average of 5.4 years, with 99% of Granite’s available space occupied. (Source: “Investor Presentation,” Granite Real Estate Investment Trust, September 2016.)
Granite’s properties are considered to have high barriers to entry. Not only are they large to accommodate tenants’ needs, but they are spread out across the world. This makes them potentially difficult to purchase, since every country has its own rules for foreign investment.
There is debt on Granite’s balance sheet, which is common in the real estate industry. However, the company is using the debt to strategically grow the business. The debt-to-capital is approximately 21%; a ratio below 50% indicates that the debt is in control and that the assets of the company are being used for growth.
Based on the price-to-earnings (P/E) ratio and comparing it the index; Granite is trading at a huge discount. The price-to-earnings ratio is 7.2 times, compared to 26.02 times for the S&P 500 index. In dollar terms, $7.20 is paid for each dollar of Granite’s earnings, while $26.02 is paid for the index. Comparing the two, Granite is trading at approximately a third of the valuation.
Even though the market cap is only $1.5 billion, Granite’s day-to-day volatility is about half that of the index. This is based on the beta of 0.53; the S&P 500’s beta is 1.0. This means that if the overall index were to fall by one percent, GRP stock should fall by approximately 0.53%.
Final Thoughts on GRP Stock
All this being said, Granite is a company that should be considered worth owning. This stock would satisfy income investors looking for a dividend investing opportunity. This would also be a unique investment because of the portfolio of assets have predictable cash flow.
Lastly, the investment makes sense from a valuation point of view as well. With a low beta, GRP stock is one that won’t worry you regarding the preservation of capital over time.