Updated on May 5th, 2022 by Quinn Mohammed
Real Estate Investment Trusts, or REITs, are divided into different sub-sectors depending on the operations of the underlying businesses.
Industrial REITs stand out because of their focus on single-tenant properties. While this poses higher vacancy risk than multi-tenant properties, it can also lead to mispriced assets and attractive buying opportunities.
Dream Industrial REIT (DREUF) is an industrial REIT which may not be well-known to investors because it operates primarily in Canada.
However, Dream Industrial REIT has a high dividend yield of 4.9%, which is more than three times the average dividend yield in the S&P 500. And, the stock pays its dividends on a monthly basis.
You can download our full list of monthly dividend stocks (along with relevant financial metrics like dividend yields and payout ratios) which you can access below:
For retirees and other investors who rely on dividend payments, monthly dividends are far superior to the traditional quarterly payment schedule.
Dream Industrial REIT’s high dividend yield and monthly dividend payments are characteristics that appeal to income investors.
This article will analyze the investment prospects of Dream Industrial in detail.
Dream Industrial is a Canadian-based, industrial-focused Real Estate Investment Trust that operates in two broad divisions:
- Multi-Tenant Properties
- Single-Tenant Properties
This diversification is outstanding among other industrial REITs and also among many other types of REITs with single-tenant properties.
The trust owns and operates a portfolio of 358 geographically diversified light industrial properties, which makes up 44.4 million square feet of gross leasable area predominantly across Canada, with some operation in the United States.
Most of the portfolio’s gross leasable area is in multi-tenant buildings with the remaining in single-tenant buildings.
Source: Investor Presentation
Dream Industrial is in the process of diversifying its asset mix, but it will likely remain focused on Canada and on industrial properties.
On May 3rd, Dream Industrial released first quarter 2022 results for the period ending March 31st, 2022. Diluted FFO per unit for the quarter came in at $0.22, up 16% from the year-ago quarter in constant currency. Net asset value (NAV) per unit rose 29% from a year ago, to C$16.48. Net rental income rose 40% to C$65.3 million in Q1, compared to $46.7 million in the previous year.
Dream Industrial REIT’s growth depends on the ability to issue new units or issue debt and invest the proceeds of these capital markets transactions into high-quality industrial real estate assets. The trust is also highly dependent on its ability to source new tenants and renew existing leases in its property portfolio.
With that in mind, investors should note that the trust has had a very strong level of occupancy since its initial public offering.
Its occupancy rate has improved in recent quarters as the trust continues to take advantage of strong fundamentals in industrial properties. Dream Industrial is focusing on the above four long-term growth drivers, in addition to future acquisitions that will build and improve its total portfolio.
Going forward, we expect 3.5% annual FFO-per-share growth each year. For its part, Dream Industrial sees a positive growth outlook for itself.
Source: Investor Presentation
The trust is heavily concentrated in Ontario and Quebec, areas in which it has experienced great success in terms of renewal spreads in recent years. It also has contractual rent increases, a natural tailwind to rental growth.
Occupancy remains high and is still increasing, and it is constantly managing its renewals to capture higher rents as quickly as possible. Dream Industrial is building its focus on e-commerce properties because the trust sees powerful, long-term tailwinds in that space.
The trust is positioning itself to be a premier provider of space its tenants need to do business in the coming years. Acquisitions are a major component of the company’s growth plan.
So far in 2022, the Trust has completed over USD $90 million of acquisitions. These include income-producing assets and a 50-acre parcel of land in Calgary. There are also $390 million of acquisitions which are firm, under contract, or in exclusivity in the target markets in Canada and Europe.
In total, we see Dream Industrial’s growth outlook as quite favorable and supportive of long-term funds-from-operations growth. Finally, Dream Industrial has begun to expand in Europe, with an initial portfolio concentrated primarily in the Netherlands, and also in Germany.
Europe is responsible for about 20% of world GDP and holds more than 700 million people. With Dream Industrial just beginning to scratch the surface of possibilities in Europe, the trust has the potential to see a long runway for growth in this region.
Dream pays a current monthly distribution of $0.0583 per share in Canadian dollars. That works out to $0.70 per share annually in Canadian currency. In U.S. dollars, Dream has an annualized dividend payout of $0.55 per share, which represents a current yield of 4.9%.
Note: As a Canadian stock, a 15% dividend tax will be imposed on US investors investing in the company outside of a retirement account. See our guide on Canadian taxes for US investors here.
In fact, the distribution has never been cut in the trust’s relatively short operating history, but also hasn’t increased it for eight years. The stagnant payout may be discouraging for investors looking for dividend growth.
The dividend payout is covered, as 2021 saw FFO-per-share of $0.64. From a dividend coverage perspective, Dream Industrial is in pretty good shape. For 2022, we are currently estimating a dividend payout ratio of roughly 77%.
Another factor helping to secure Dream Industrial’s dividend payout is its strong balance sheet. Dream Industrial has an investment-grade credit rating of BBB and a manageable level of debt.
Source: Investor Presentation
Finally, income investors should consider the payout ratio when assessing a dividend’s sustainability. Payout ratios for REITs are always very high because they are required to distribute nearly all of their earnings.
At 77% expected for 2022, Dream Industrial’s payout ratio appears healthy, and we view the dividend payout as safe. Distribution growth may prove to be elusive, but we do not see a cut anytime soon.
Dream Industrial REIT’s high dividend yield and monthly dividend payments are two reasons why the company will stand out to income investors.
The stock yields over 4.8%, which is relatively appealing given the persistent low interest rate environment. Investors may find the high yield an attractive income possibility.
The REIT has strong fundamentals and a very high occupancy rate. The trust also has the potential for future growth, especially in Europe. Dream Industrial could interest those investors looking for high income and growth potential.