Month-to-month Dividend Inventory In Focus: Agency Capital Property Belief

Printed on October tenth, 2024 by Aristofanis Papadatos

Agency Capital Property Belief (FRMUF) has three interesting funding traits:

#1: It’s a REIT so it has a good tax construction and pays out nearly all of its earnings as dividends.Associated:  Listing of publicly traded REITs

#2: It’s a high-yield inventory based mostly on its 8.9% dividend yield.Associated: Listing of 5%+ yielding shares

#3: It pays dividends month-to-month as an alternative of quarterly.Associated: Listing of month-to-month dividend shares

You possibly can obtain our full Excel spreadsheet of all month-to-month dividend shares (together with metrics that matter like dividend yield and payout ratio) by clicking on the hyperlink beneath:

Agency Capital Property Belief’s trifecta of favorable tax standing as a REIT, a excessive dividend yield, and a month-to-month dividend make it interesting to particular person buyers.

However there’s extra to the corporate than simply these elements. Maintain studying this text to study extra about Agency Capital Property Belief.

Enterprise Overview

Agency Capital Property Belief is targeted on creating long-term shareholder worth by means of capital preservation and disciplined investing.

In partnership with administration and business leaders, the REIT co-owns a diversified property portfolio that features multi-residential, industrial, internet lease comfort retail and core service supplier skilled house.

Agency Capital Property Belief has a historical past of 36 years, with presence in the actual property markets of Canada and the U.S. As its administration instantly invests in some property of the REIT, its pursuits are aligned with these of the shareholders.

Supply: Investor Presentation

Agency Capital Property Belief presently has 64 business properties with a gross leasable space of 4.4 million sq. toes, pursuits in 5 house complexes, and 4 manufactured housing communities.

Because of its strong investing technique, Agency Capital Property Belief proved resilient all through the coronavirus disaster. In sharp distinction to many different REITs, which lower their dividends, Agency Capital Property Belief stored rising its dividend in its native foreign money (CAD).

Agency Capital Property Belief presently enjoys first rate enterprise momentum however it’s dealing with a headwind from almost 23-year excessive rates of interest, which have significantly elevated the curiosity expense of the REIT. In 2023, Agency Capital Property Belief noticed its funds from operations (FFO) per unit lower 43% vs. 2021, partly because of a 50% improve in curiosity expense.

Fortuitously for the REIT, the Fed simply started lowering rates of interest and expects to cut back them additional, from 4.75%-5.0% to about 2.75%-3.0% after 2026. If the central financial institution executes as per its steerage, it would present a robust tailwind to the outcomes of Agency Capital Property Belief.

Progress Prospects

Agency Capital Property Belief goals to develop through strategic accretive acquisitions. It companions with robust business leaders, who retain property administration, and likewise executes partial acquisitions.

Agency Capital Property Belief can boast of getting a defensive enterprise mannequin because of the excessive credit score profile of its tenants. Then again, buyers needs to be conscious that this can be a slow-growth REIT.

Supply: Investor Presentation

Since its inception, in 1988, Agency Capital Property Belief has grown its internet asset worth per unit by solely 57%. In different phrases, the REIT has grown its internet asset worth per unit by 1.3% per yr on common since its inception.

It is very important notice that the lackluster efficiency report has resulted partly from the strengthening of the USD vs. CAD. Because the Canadian greenback has depreciated by about 18% over the past decade, it’s evident that Agency Capital Property Belief has confronted a robust foreign money headwind in its outcomes over the past decade.

Furthermore, central banks raised rates of interest aggressively within the final two years so as to cool the financial system and restore inflation to their goal vary. Greater rates of interest have elevated the curiosity expense of Agency Capital Property Belief by 50% within the final two years.

As inflation appears to have lastly moderated, central banks are prone to scale back rates of interest within the upcoming years.

Given the strong enterprise mannequin of Agency Capital Property Belief but additionally its lackluster efficiency report and its foreign money danger, we anticipate the REIT to develop its FFO per unit by about 2.0% per yr on common over the subsequent 5 years.

Dividend & Valuation Evaluation

Agency Capital Property Belief is presently providing an above common dividend yield of 8.9%. It’s an fascinating candidate for income-oriented buyers, however the latter needs to be conscious that the dividend might fluctuate considerably over time because of the fluctuation of the alternate price between the Canadian greenback and the USD.

Furthermore, the REIT has an elevated payout ratio of 83%, which significantly reduces the margin of security of the dividend. Moreover, the REIT has an curiosity protection ratio of solely 2.3. This protection ratio is low, significantly given the headwind from excessive rates of interest.

Because of this, buyers shouldn’t anticipate significant dividend development going ahead. It is usually necessary to notice that the dividend has been frozen over the past three years. Total, the dividend could also be lower within the occasion of an unexpected downturn, reminiscent of a deep recession.

We additionally notice that Agency Capital Property Belief has a cloth debt load in its steadiness sheet. Its internet debt is presently standing at $247 million, which is 160% of the market capitalization of the inventory. The excessive dividend payout ratio, the low curiosity protection ratio, and the fabric debt load of the REIT considerably scale back its resilience to a possible future recession.

In reference to the valuation, Agency Capital Property Belief is presently buying and selling for 9.2 instances its FFO per unit within the final 12 months. Given the excessive debt load of the REIT, we assume a good price-to-FFO ratio of 10.0 for the inventory.

The present FFO a number of is barely decrease than our assumed truthful price-to-FFO ratio. If the inventory trades at its truthful valuation stage in 5 years, it would take pleasure in a 1.6% annualized achieve in its returns.

Making an allowance for the two% annual FFO-per-unit development, the 8.9% dividend and a 1.6% annualized enlargement of valuation stage, Agency Capital Property Belief might supply a ten.4% common annual whole return over the subsequent 5 years.

That is a sexy anticipated return, although we suggest ready for a greater entry level so as to improve the margin of security in addition to the anticipated return.

Furthermore, the inventory is appropriate just for the buyers who’re snug with the danger that comes from the excessive payout ratio and the fabric debt load of the belief.

Last Ideas

Agency Capital Property Belief has a strong enterprise mannequin because of the competence of its administration and the alignment of pursuits between its administration and its shareholders, as administration invests within the properties of the REIT. It is a important benefit for the shareholders.

Regardless of its excessive payout ratio of 83%, the inventory is providing an exceptionally excessive dividend yield of 8.9% and therefore it’s a sexy candidate for the portfolios of income-oriented buyers.

Then again, buyers ought to pay attention to the dangers associated to the excessive payout ratio and the leveraged steadiness sheet of the belief. If inflation surges once more, then excessive rates of interest will significantly burden the REIT by means of excessive curiosity expense.

Subsequently, solely the buyers who’re assured that inflation won’t get better ought to contemplate buying this inventory.

Furthermore, Agency Capital Property Belief is characterised by extraordinarily low buying and selling quantity. Because of this it’s arduous to ascertain or promote a big place on this inventory.

Extra Studying

Don’t miss the sources beneath for extra month-to-month dividend inventory investing analysis.

And see the sources beneath for extra compelling funding concepts for dividend development shares and/or high-yield funding securities.