Is it a good company at a reasonable price? It is probably a reasonably good REIT. I do not have current plans of selling this stock. REITs are high yield stocks that do not seem to growth their dividends much. Mostly I like lower yielding stocks that increase their dividends, but thought I needed exposure to real estate as I do not own any real estate. I rent.
I own this stock of RioCan Real Estate (TSX-REI.UN, OTC-RIOCF). I first bought this stock in 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.
When I was updating my spreadsheet, I noticed I have had this stock for some 24 years and have made a total return of 10.88% per year with 2.20% from capital gains and 8.68% from dividends. Although I have done well for the long term, I note that anyone holding this stock for 5, 10 and 15 years has made little. See chart below.
If you had invested in this company in December 2011, $1,004.34 you would have bought 38 shares at $26.43 per share. In December 2021, after 10 years you would have received $522.31 in dividends. The stock would be worth $871.72. Your total return would have been $1,394.03.
| Cost | Tot. Cost | Shares | Years | Dividends | Stock Val | Tot Ret |
|---|---|---|---|---|---|---|
| $26.43 | $1,004.34 | 38 | 10 | $522.31 | $871.72 | $1,394.03 |
The dividend yields are moderate with dividend growth very low. The current dividend yield is moderate (2% to 4% ranges) at 3.98%. The 5, 10 and historical dividend yields were good (5% and 6% ranges) at 5.60%, 5.36% and 6.95%. After decreasing the dividends in 2021 by 33%, the company in 2022 raised the dividends by 6.25%. However, the dividends are still 29% below the dividends in 2021. They have raised their dividends 19 times over the past 27 years and decreased them once.
The Dividend Payout Ratios (DPR) are fine. The DPR for EPS for 2021 was 53% and 5 year coverage at 83%. The DPR for Cash Flow per Share is 67% with 5 year coverage at 86%. Since this is a REIT, we should look at DPR for Adjusted Funds from Operations (AFFO) which for 2021 is 74% with 5 year coverage at 96%. We should also look at DPR for Funds from Operations (FFO) which for 2021 is 63% with 5 year coverage at 77%. I do not know how valid the DPR for Free Cash Flow is. Morningstar has just restated FCF for last 5 years at a much lower level. (They changed the FCF for 2020 from $491M to $36M. WSJ has not revised their FCF.) Prior to 2021, FCF was covering dividends, now it is not according to MS.
Debt Ratios are fine. Long Term Debt/Market Cap Ratio for 2021 is 0.75 and is fine. The Liquidity Ratio is not important for Financials, but I still calculated it and for 2021 I get a ratio of 2.62. The Debt Ratio is 2.09 and this is good.
The Total Return per year is shown below for years of 5 to 28 to the end of 2021. Under the Capital Gain column is the portion of the Total Return attributable to capital gains. Under the Dividend column is the portion of the Total Return attributable to dividends. See chart below.
| From | Years | Div. Gth | Tot Ret | Cap Gain | Div. |
|---|---|---|---|---|---|
| 2016 | 5 | -6.64% | 2.43% | -2.94% | 5.37% |
| 2011 | 10 | -3.17% | 4.13% | -1.41% | 5.53% |
| 2006 | 15 | -1.72% | 5.06% | -0.61% | 5.67% |
| 2001 | 20 | -0.36% | 11.86% | 3.23% | 8.63% |
| 1996 | 25 | 1.74% | 14.11% | 4.05% | 10.06% |
| 1995 | 28 | 3.18% | 14.07% | 4.33% | 9.74% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are 9.38, 10.43 and 12.17. The corresponding 10 year ratios are 9.83, 11.05 and 12.28. The corresponding historical ratios 11.64, 12.06 and 13.36. The 15.74 based on stock price of $25.66 and EPS estimate for 2022 of $1.63. The current P/E Ratio is above the high of the 10 year median ratios. This stock price testing suggests that the stock price is relatively expensive
Since this is a REIT, we need to look at Price/Funds from Operations. The 5 year P/FFO Ratios are 12.46, 13.16 and 14.86. The corresponding 10 year ratios are 12.91, 13.97 and 16.22. The current P/FFO Ratio is 15.09 based on a stock price of $25.66 and FFO estimate for 2022 of $1.70. The current ratio is between the median and high of the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median.
Since this is a REIT, we need to look also at Price/Adjusted Funds from Operations. The 5 year P/AFFO Ratios are 15.90, 16.80 and 18.88. The corresponding 10 year ratios are 15.90, 17.27 and 19.10. The current P/AFFO Ratio is 17.82 based on a stock price of $25.66 and AFFO estimate for 2022 of $1.44. The current ratio is between the median and high of the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get a Graham Price of $28.50. The 10 year low, median, and high median Price/Graham Price Ratios are 0.82, 0.91 and 1.01. The current P/GP Ratio is 0.90 based on a stock price of $25.66. The current ratio is between the low and median ratios of the 10 year median ratios. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get a 10 year median Price/Book Value per Share Ratio of 1.01. The current P/B Ratio is 1.02 based on a Book Value $7,767M, Book Value per Share of $25.07 and a stock price of $25.66. The current ratio is 1% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get a 10 year median Price/Cash Flow per Share Ratio of 17.43. The current P/CF Ratio is 16.21 based on Cash Flow for the last 12 months of $490M, Cash Flow per Share of $1.58 and a stock price of $25.66. The current ratio is 7% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get an historical median dividend yield of 6.95%. The current dividend yield is 3.98% based on dividends of $1.02 and a stock price of $25.66. The current dividend yield is 43% below the historical dividend yield. This stock price testing suggests that the stock price is relatively expensive.
I get an historical median dividend yield of 5.36%. The current dividend yield is 3.98% based on dividends of $1.02 and a stock price of $25.66. The current dividend yield is 26% below the historical dividend yield. This stock price testing suggests that the stock price is relatively expensive.
The 10 year median Price/Sales (Revenue) Ratio is 6.99. The current P/S Ratio is 6.64 based on a stock price of $25.66, Revenue estimate for 2022 of $1,196 and Revenue per Share of $3.86. This ratio is 5% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median.
Results of stock price testing is that the stock price is probably reasonable. The P/S Ratio testing says that the stock price is reasonable and below the median. The dividend yield tests are not much good because of a recent dividend cut. Most of the testing says the stock price is reasonable and above or below the median. The P/E Ratio test is not a good one either because this is a REIT and FFO is a better measurement.
What I said last year was that the results of stock price testing were that the stock price is relatively cheap. The P/S Ratio test shows this. The dividend yield test shows that it is at least reasonable by the 10 year median yield test. However, this company just lower their dividends and if it had not, it would have been reasonable or cheap by these tests. Other tests show this stock as cheap.
When I look at analysts’ recommendations, I find Strong Buy (4) and Buy (5). The consensus is a Strong Buy. The 12 months stock price consensus is $26.83. This implies a total return of 8.53% with 4.56% from capital gains and 3.98% from dividends. Even the high stock price is only $28.00 which implies a total return of 13.09% with 9.12% from capital gains and 3.98% from dividends.
When I looked at analysts’ recommendations last year, I found Strong Buy (3), Buy (2) and Hold (3). The consensus would be a Buy. The 12 month price consensus is $20.19. This implies a total return of 8.74% with 3.80% from capital gains and 4.94% from dividends based on a current stock price of $19.45. What happened was a total return of 36.87% with 31.93% from capital gains and 4.94% from dividends. So, they were way off in stock price.
Two analysts recently covered this stock in Stock Chase and one said Buy and the other Do not Buy. Vishesh Raisinghani on Motley Fool thinks growth will continue and FFO be up 5 to 7% this year. TD WebBroker says the same thing. Aditya Raghunath on Motley Fool thinks that this stock is great for passive income. The company put out a Press Release on their fourth quarterly results. Global Newswire on Yahoo Finance has published this company’s 5 year growth targets. Simply Wall Street reviews this stock via Yahoo Finance. Simply Wall Street has 4 warnings on this stock of Earnings have declined by 19.4% per year over past 5 years, Debt is not well covered by operating cash flow, Dividend of 4% is not well covered by earnings, and Significant insider selling over the past 3 months. Note that because this is a REIT, FFO coverage counts more than EPS coverage. Also note that the CEO, CFO and Chairman all increased their holdings in the past year.
RioCan Real Estate Investment Trust is a Canadian real estate investment trust which owns, develops, and operates Canada's portfolio of retail-focused, increasingly mixed-use properties. Most of its properties are located in Ontario, Canada. By geography, the company operates in Canada, which generates the majority of total revenue, and in the United States. Its web site is here RioCan Real Estate.
The last stock I wrote about was about was Home Capital Group (TSX-HCG, OTC-HMCBF) ... learn more. The next stock I will write about will be H & R Real Estate Trust (TSX-HR.UN, OTC-HRUFF) ... learn more on Friday, March 18, 2022 around 5 pm. Tomorrow on my other blog I will write about Make Friends as An Adult.... learn more on Thursday, March 17, 2022 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.
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