Wednesday, March 1, 2017

RioCan Real Estate

Sound bite for Twitter and StockTwits is: Diversification Buy. A good reason to buy REITs is for diversification. They can also provide good and increasing income. I do expect this stock to become a dividend growth stock again. What I want from the REITs is growth of distribution higher than the inflation rte. In the meantime the dividend yield of 5.28% is very good. See my spreadsheet on RioCan Real Estate.

I own this stock of RioCan Real Estate (TSX-REI.UN, OTC-RIOCF). I first bought this stock 1998 because I wanted to diversify my portfolio into REITs. It was a stock covered and recommended by MPL Communications in their Income Trust coverage. Over the years I have made several more purchases of this REIT.

I made purchases of this stock in 1998, 2000, 2002, 2010, 2011, 2013 and 2014. I have made a total return of 12.87% per year with 3.97% from capital gains and 8.90% from distributions. This is the sort of total return you should expect from a REIT. They generally have good distributions and low capital growth. Because of the way distributions are taxed, it is a stock that may be better in an RRSP, RRIF or TFSA account.

The dividend yield is currently good with very low dividend growth. The current dividend is 5.28% based on distributions of $1.41 and a stock price of $26.83%. Although the company has expressed interest in increasing the distributions, no analysts thinks this will happen before 2019.

Mostly analysts look at Dividend Payout Ratios for REITs using AFFO and FFO values. The DPR for AFFO is for 2016 at 92% with a 5 year value of 94%. The DPR for FFO for 2016 is 84% and the 5 year value is also at 84%. It is because the DPRs, and especially, the because the AFFO DPR is so high is the reason that analysts do not expect any distribution increase soon.

The distribution growth is very low. The 5 and 10 year growth is at 0.4% and 0.8% per year. This is because the distribution has been at the $1.41 since 2013.

Instead of using the Price/Earnings per Share Ratio to judge the stock price, for REITs it is probably better to use the Price/Funds from Operations Ratio. The 5 year low, median and high median P/FFO Ratios are 14.85, 15.93 and 17.87. The 10 year values are 13.53, 15.76 and 17.43. The current P/FFO Ratio is 16.27 based on a stock price of $26.68 and 2017 FFO estimate of $1.64. This is just 2% higher than the 5 year median value of 15.93. This stock price testing suggests that the stock price is relatively reasonable and around the median.

I get a Graham Price of $29.81. The 10 year low, median and high median Price/Graham Price Ratios are 0.82, 1.01 and 1.09. The current P/GP Ratio is 0.90 based on a stock price of $26.68. This stock price testing suggests that the stock price is reasonable and below the median. (See my site for information on calculating Graham Price or see blog for information on Graham Price.)

Since the new account rules affected the Book Value, I think that using the 5 year median Price/Book Value per Share Ratio for testing is the best. The 5 year median P/BV Ratio is 1.11. The current P/BV Ratio is also 1.11 based on BVPS of $24.08 and a stock price of $26.68.

REITs in the 1990's and the beginning of 2000 had much higher dividend yields than today. This historical median dividend yield is 7.48%. The 5 year median dividend yield is 5.31% a value very close to the current dividend yield of 5.28%. The 10 year median Dividend yield is 5.46% a value some 3% higher than the current dividend yield of $5.28%. This stock price testing suggests that the stock price is relatively reasonable and around or just above the median.

When I look at analysts' recommendations, I find Strong Buy, Buy and Hold Recommendations. Most of the recommendations are a Buy. The 12 month stock price consensus is $29.64. This implies a total return of 16.38% with 11.09% from capital gains and 5.28% from dividends.

Jacob Donnelly of Motley Fool talks how much he likes this stock. (Do not forget that if you do not get the full report, click out and then back into this page and you will get the full report.) Mark Robinson of Daily Quint talks about Royal Bank reaffirming their Outperform (Buy) recommendation of this stock with a $30.00 price objective. (See my blog for information on Analyst Ratings .) See what analysts are saying about this stock on Stock Chase. Some are quite negative.

RioCan is Canada's largest real estate investment trust exclusively focused on retail real estate. Their core strategy is to own and manage community-oriented neighbourhood shopping centers anchored by supermarkets, together with a rapidly expanding mix of new format retail centers. RioCan owns interests in 51 centers in the United States located in the Northeastern United States and Texas, managed through its offices in New Jersey and Dallas. Its web site is here RioCan Real Estate.

The last stock I wrote about was about was Canadian Real Estate Investment Trust (TSX-REF.UN, OTC- CRXIF)... learn more . The next stock I will write about will be Allied Properties Real Estate Investment Trust (TSX-AP.UN, OTC- APYRF)... learn more on Friday, March 3, 2017 around 5 pm. Tomorrow on my other blog I will write about If I knew then 3... learn more on Thursday, March 2, 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.

1 comment:

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