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Monthly Dividend Stock In Focus: Dream Industrial REIT


Updated on September 28th, 2024 by Felix Martinez

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 4.8%, which is about three times the average dividend yield in the S&P 500. And, the stock pays its dividends on a monthly basis.

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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.

Business Overview

Dream Industrial is a Canadian-based, industrial-focused Real Estate Investment Trust that operates in two broad divisions:

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 257 geographically diversified light industrial properties, which make up 71.9 million square feet of gross leasable area predominantly across Canada, with some operations 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.

Dream Industrial Real Estate Investment Trust (REIT) reported strong financial results for Q2 2024, with significant progress in development leasing. The company successfully leased over 500,000 square feet of space, including the full leasing of a 209,000 square foot redevelopment in Mississauga, Ontario. The trust also made strides in its Calgary developments. Financial highlights for the quarter include a 0.4% increase in diluted funds from operations (FFO) per unit, reaching $0.25, and a 5% rise in comparative properties net operating income (CP NOI) to $92.9 million, driven by growth in Canada and Europe.

Net rental income for Q2 2024 increased by 5.6% to $87.7 million, with significant year-over-year growth in Ontario (9.5%), Québec (7.2%), and Europe (3.1%). However, Western Canada saw a 4.2% decline, excluding disposed investment properties. The REIT’s net income for the quarter was $61.6 million, down from $80.4 million in Q2 2023, primarily due to fair value adjustments on investment properties and financial instruments. Despite the drop in net income, the trust’s rental income and CP NOI demonstrated strong performance.

As of June 30, 2024, Dream Industrial REIT’s total assets increased to $8.0 billion, a 2.1% rise from December 2023, driven by investments in development projects and joint ventures. Total equity grew to $4.7 billion, while the net asset value (NAV) per unit increased by 0.7% to $16.73. The REIT continues to expand its portfolio and strengthen its financial position through strategic investments and development projects.

Growth Prospects

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 years as the trust continues to take advantage of strong fundamentals in industrial properties. Dream Industrial is focusing on its four long-term growth drivers, in addition to future acquisitions that will build and improve its total portfolio.

Going forward, we expect 4.0% 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.

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 740 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.

Dividend Analysis

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 $0.52 per share, which represents a current yield of 4.8%.

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 nine years. The stagnant payout may be discouraging for investors looking for dividend growth.

Related: 3 Reasons Why Companies Cut Their Dividends (With Examples)

The dividend payout is covered, as 2024 saw FFO-per-share of $0.64. From a dividend coverage perspective, Dream Industrial is in pretty good shape. For 2024, we are currently estimating a dividend payout ratio of roughly 80%.

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.

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 80% expected for 2024, 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.

Final Thoughts

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 4.8%, which is relatively appealing. 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.

Don’t miss the resources below for more monthly dividend stock investing research.

And see the resources below for more compelling investment ideas for dividend growth stocks and/or high-yield investment securities.

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