The Money Reporter regularly reviews the 20 top income stocks and trusts for the income-focused investor. From those 20 it highlights those it views as being its current choices for new buying based on factors such as price, sector and economic fundamentals.
■ Canadian Apartment Properties Real Estate Investment Trust, or CAPREIT (TSX—CAR.UN) continues to set operating and financial performance records. At the same time, the real estate investment trust continues to strengthen and diversify its portfolio through strategic acquisitions in its key target markets. In 2016, it acquired 1,984 suites and sites in Ontario, B.C., Nova Scotia and P.E.I. This activity exceeded management’s long-term objective of buying an average of between 1,500 and 2,000 suites annually. The total acquisition cost for these properties was about $317.6 million, funded mostly by a $165.1-million bought equity offering last August, new and assumed mortgages on the acquisitions, and cash from credit lines.
CAPREIT owns interests in multi-unit residential properties, including apartments, townhouses and manufactured home communities (MHC) mostly located in and near major urban centres across Canada. At the end of 2016, the REIT owned interests in 48,767 residential suites.
For the year ended Dec. 31, 2016, CAPREIT’s normalized funds from operations (NFFO) were $231.8 million, or $1.75 a diluted unit, compared with $200.0 million, or $1.67 a unit, in 2015. This increase was mostly due to contributions from acquisitions and higher net operating income (NOI) for properties owned prior to Dec. 31, 2015. NOI increased 13.0 per cent to $366.9 million due to reduced repair and maintenance costs and vacancies.
With the release of these financial results in late February, management announced a 2.4-per-cent increase in the monthly cash distribution to $0.1067 a unit. This is the fourteenth such increase since the REIT went public in 1997, and reflects what management believes is its “highly positive future outlook”. What’s more, the distribution is well covered, as the payout ratio of distributions declared to NFFO remains conservative at 70.9 per cent, down from 73.1 per cent in 2015.
Despite the potential negative impact of economic uncertainty, CAPREIT believes its multi-residential business, which delivers stable, low-risk cash flows, will continue to improve in most of the markets in which it operates. What’s more, the REIT also believes the strong defensive characteristics of its property portfolio, which is diversified by geography and demography, will reduce the negative impact of any regional economic downturns in Canada.
CAPREIT’s units recently traded at a premium multiple of its likely 2017 NFFO of $1.82 a unit. The annual distribution of $1.28 a unit is a decent yield, though this yield is down from 4.1 per cent when we reviewed the REIT in November, 2016.
CAPREIT is an attractive buy on weakness below $34.
Here’s another income trust and two income stocks to buy
■ H&R REIT (TSX—HR.UN) has a portfolio of 38 office properties, 156 retail properties, 101 industrial properties, 12 residential properties and four development projects. The REIT is well diversified geographically and by asset class, which helps provide stable financial results. It’s attractively valued compared to our other REITs, and it also yields a higher-than-average 5.9 per cent. It’s a buy for growth and income.
■ EnerCare Inc. (TSX—ECI) is one of North America’s largest home and commercial services and energy solutions companies. It believes its 2016 Service Experts acquisition has provided it with lots of untapped value. The acquisition has increased its customer base and extended its reach into the U.S. and Western Canada, giving it several new growth opportunities. The stock yields 4.6 per cent and is a buy for growth and income.
■ Pembina Pipeline Corp. (TSX—PPL) is a North American transportation and mid-stream service provider. The oil and gas pipeline stock’s high-quality assets and integrated structure should let it realize significant growth opportunities, while providing shareholders with a relatively defensive investment in the energy sector. The stock yields 4.6 per cent and is a buy for growth and income.
This is an edited version of an article that was originally published for subscribers in the May 5, 2017, issue of Money Reporter. You can profit from the award-winning advice subscribers receive regularly in Money Reporter.
Money Reporter, MPL Communications Inc.
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