Monday, February 27, 2017

Canadian Real Estate Investment Trust

Sound bite for Twitter and StockTwits is: Diversification Buy. On many levels the current stock price seems reasonable, but if you test with dividend yield, the current price seems a bit expensive. It may not be the time to buy. I would expect a dividend yield of at least 4% for a REIT. See my spreadsheet on Canadian Real Estate Investment Trust.

I own this stock of Canadian Real Estate Investment Trust (TSX-REF.UN, OTC-CRXIF). I started to follow some REITs because I wanted to diversify my portfolio into REITs. I was mainly interested in ones that have commercial properties. In September 2009, I wanted to buy another REIT after having to sell Summit. I already have lots of RioCan. I looked at H&R and CDN REIT. I thought that CDN REIT was a better buy at that time. I was not interested in CAP as it is only Apartments.

I bought this company in September 2006 so I have had this stock for just over 10 years. I have earned a total return of 10.46% per year with 5.81% per year from capital gains and 4.65% per year from Dividends. Dividends have paid for some 60% of the cost of my stock.

Current dividends are moderate but have been good in the past. Dividend growth is low. The current dividends are 3.67% based on a stock price of $49.92 and dividends of $1.83. The five year dividend is 3.75% and the 10 year median dividend is 4.13%, but the historical median dividend yield is 6.38%. Dividends were quite high until 2010.

The dividend growth for this REIT is a good one. Basically with the REIT you want good dividends (4% to5% range) and dividend growth at or slightly about the rate of inflation. With this REIT you currently get a slightly lower dividend (3.67%) and dividend growth at 4.95% and 3.49% per year over the past 5 and 10 years. As far as I can see total inflation is 1.33% and 1.46% per year over the past 5 and 10 years. So with this REIT you have slightly lower dividend yield but a higher than inflation growth in dividends.

Dividend Payout Ratios are good for this stock. The DPR for CFPS for 2016 was 52.9% with a 5 year payout at 48.6%. The DPR for FFO for 2016 was 55.4% and the 5 year rate is 56.9%. The DPR for AFFO for 2016 was 71.8% and the 5 year rate is 67.6%. For REITs DPR for AFFO is best to be topped between 75% and 95%. So this is well within these parameters.

One of the downsides to REITs is that a lot of the distributions are taxed as other income that is at the full tax rate. You do not get the good lower tax rate that applies to dividend income. On the other hand some of the distribution is considered to be return of capital and therefore not taxable until the total return of capital you receive exceeds your purchase price. Over the past 5 years some 86% of the distributions were from other income and less than 1% was return of capital.

Instead of Price/Earnings per Share Ratios for REITs, it is probably better to use Price/Funds from Operations Ratios to judge a REITs price. The 5 year low, median and high median P/FFO Ratios are 13.89, 15.25 and 16.61. The 10 year ratios are 13.04, 14.36 and 15.78. The current P/FFO Ratio is 14.95 based on a stock price of $49.92 and 2017 FFO estimate of $3.34. This stock price testing suggests that the stock price is relatively reasonable and below the median.

I get a Graham Price of $58.54. The 10 year low, median and high median Price/Graham Price Ratios are 0.86, 1.01 and 1.16. The current P/GP Ratio is 0.85 based on a stock price of $49.92. This stock price testing suggests that the stock price is relatively cheap.

I get a 10 year median Price/Book Value per Share Ratio 1.69. However, the new accounting rules greatly affected the book value for REITs. So I feel that using the 5 year median P/B Ratio is the better one to use. That one is 1.03. The current P/B Ratio is 1.09 a value close to the 5 year median. This stock price testing suggests that the stock price is relatively reasonable and around the median.

The only time that the stock price does not look reasonable is when using the historical median dividend yield. This yield is 6.38% and the current dividend yield at 3.67% is some 42% lower. The current dividend yield is based on distributions of $1.83 and a stock price of $49.92.

However, both the 5 year and 10 year median dividend yields are lower and closer to the current one. The 5 year median dividend yield is 3.79% a value some 3% above the current dividend yield. The 10 year dividend yield is 4.13% a value 11% higher than the current dividend yield. Do not forget with dividend yields you want the current one to be the highest one for a cheap or reasonable stock price. With both these the stock price looks reasonable, but above the median.

The analysts certainly do not expect much in the way of capital gains over the next 12 months. They expect capital gains of only some 2.4% which is rather low for an REIT and perhaps they are saying that they think the price of the REIT is relatively high.

When I look at analysts' recommendations, I find Strong Buy, Buy and Hold. Most are in the Hold category, but the consensus would be the Buy category. The 12 month stock price consensus is $51.14. This implies a total return of 6.11% with 3.67% from dividends and 2.44% from capital gains.

There is a press release by the company on Market Wired about this REITS fourth quarterly results. Robert V. Boyd on Daily Quint talks about Scotiabank reaffirming a sector perform rating and a12 months stock price of $51.00. Joseph Solitro of Motley Fool likes this stock because of its high and safe dividends.

Canadian Real Estate Investment Trust is an equity real estate trust, which acquires and owns a portfolio of income-producing properties. It specializes in the acquisition and ownership of community shopping centers, industrial and office properties across Canada. This company owns office, industrial, retail properties and some miscellaneous items such as apartment buildings. Its web site is here Canadian Real Estate Investment Trust.

The last stock I wrote about was about was Bombardier Inc. (TSX-BBD.B, OTC-BDRBF)... learn more . The next stock I will write about will be RioCan Real Estate (TSX-REI.UN, OTC- RIOCF)... learn more on Wednesday, March 1, 2017 around 5 pm. Tomorrow on my other blog I will write about If I knew then 2... learn more on Tuesday, February 29, 2017 around 5 pm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my website for stocks followed and investment notes. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter or StockTwits.

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