Updated on October 9th, 2024 by Aristofanis Papadatos
Real estimate investment trusts, or REITS, are often a favorite of investors looking for generous dividend yields as these companies are required by law to distribute the vast majority of income to shareholders in the form of dividends.
Even better, a number of REITs distribute dividends on a monthly payment schedule which allows for regular cash flows. This can be a good opportunity for those investors that are in need of consistent, monthly payments.
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Slate Grocery REIT (SRRTF) is a Canadian-based real estate investment trust that began paying a monthly dividend in 2014. The stock currently yields 8.6%, which is more than seven times the average yield of 1.2% of the S&P 500 Index.
This article will evaluate the trust and its dividend to determine if Slate Grocery could be a good candidate for income-oriented investors.
Business Overview
Slate Grocery is an open-ended mutual fund trust headquartered in Toronto and listed on the Toronto stock exchange. U.S. investors can purchase the stock over-the-counter.
Although it is based in Canada, Slate Grocery actually focuses on purchasing, owning, and leasing a portfolio of real estate properties in the U.S.
Source: Investor Presentation
Slate Grocery’s portfolio of 116 properties is anchored almost exclusively by grocery stores. The trust has more than 15 million square feet of properties. As of the most recent quarter, the portfolio was valued at $2.4 billion.
In the second quarter of 2024, Slate Grocery grew its rental revenue and its funds from operations (FFO) per share by 3% and 3.5%, respectively, over the prior year’s quarter. Occupancy remained constant at 94.2%.
Slate Grocery benefited from the strong fundamentals surrounding the grocery-anchored sector. The REIT has been leasing high volumes of properties at double-digit yield spreads in recent quarters.
In addition, management expects to keep growing revenues and FFO, primarily thanks to record-low vacancy rates and minimal new supply of properties.
Growth Prospects
Slate Grocery counts some of the largest grocery stores in the country as its tenants.
Source: Investor Presentation
Walmart Inc. (WMT), Kroger Corporation (KR), and Costco Wholesale Corporation (COST) are Slate Grocery’s three largest tenants. The first two names make up more than 18% of the total portfolio, which places a good number of properties with just two tenants.
Beyond Walmart and Kroger, however, no tenant accounts for more than 5% of the portfolio, providing Slate Grocery with a good amount of diversification amongst its clients. Only Walmart and Kroger contribute at least 9.0% of annualized base rents.
In addition, Slate Grocery leases properties to six of the top seven U.S. groceries by market share. This means that the trust’s properties are visited by millions of people each week.
Expanding beyond just grocery stores, Slate Grocery has amongst its tenants 20 of the 25 largest consumer good distributors in the world, including Amazon.com Inc. (AMZN), Home Depot (HD), Lowe’s Companies (LOW), and CVS Health Corp. (CVS).
The rise of e-commerce purchasing channels has changed the nature of the retail business. While this has impacted many types of retail companies, grocery stores have weathered these changes better than most.
The resilience of grocery stores can be attributed to their shift to online ordering to drive sales to their businesses. The Covid-19 pandemic accelerated this transition, as grocery stores, along with many other businesses, had to change the way they operated under severe social distancing guidelines.
Slate Grocery’s tenants pivoted quickly to the point where 100% of the portfolio now provides omnichannel distribution, with most fulfilling e-commerce purchases from neighborhood store locations. The trust also has a presence in 23 of the top 50 metropolitan areas in country.
Inflation has been a headwind in many industries, but the majority of lease agreements have built in rental escalators, which have helped offset the increased expenses of the trust. Moreover, while many REITs are struggling to cover their interest expense amid nearly 23-year high interest rates, Slate Grocery has a strong interest coverage ratio of 2.3.
With top names as tenants, multiple ways for customers to purchase goods, and a strong footprint of properties, Slate Grocery should continue to see solid growth rates moving forward.
Dividend Analysis
That growth should enable Slate Grocery to continue to pay its dividend, which currently corresponds to an annualized yield of 8.6%. On the other hand, Slate Grocery has frozen its dividend over the last five years.
While those investors looking for dividend growth will likely be disappointed, it should be noted that the dividend has not been reduced since the second ever monthly distribution in 2014. Slate Grocery’s annualized dividend is $0.864.
The REIT currently has a payout ratio of 72%, which is elevated but reasonable for a REIT. Given also the healthy balance sheet of the REIT and its decent growth prospects, the dividend appears to have a meaningful margin of safety in the absence of a severe recession.
Final Thoughts
Monthly dividend paying stocks can provide more consistent cash flows. In addition to this, Slate Grocery offers an exceptionally high yield, which appears safe for the foreseeable future. The trust is also backed by high-quality tenants in some of the largest metropolitan areas in the U.S.
Slate Grocery’s tenants have adapted to the changing landscape in retail by embracing the use of e-commerce to drive sales. Investors might find the combination of all these characteristics an attractive investment opportunity.
Additional Reading
Don’t miss the resources below for more monthly dividend stock investing research.
- 20 Highest Yielding Monthly Dividend Stocks
- 10 Cheapest Monthly Dividend Stocks
- 10 Safest Monthly Dividend Stocks
- 3 Top ‘Hold Forever’ Monthly Dividend Stocks
And see the resources below for more compelling investment ideas for dividend growth stocks and/or high-yield investment securities.
- Dividend Kings: 50+ years of rising dividends
- Dividend Champions: 25+ years of rising dividends
- Dividend Aristocrats: 25+ years of rising dividends and in the S&P 500
- Dividend Achievers: 10+ years of rising dividends and in the NASDAQ
- High Dividend Stocks: 4%+ dividend yields
- Blue Chip Stock: Kings, Aristocrats, and Achievers
- MLPs: List of MLPs and more
- REITs: List of REITs and more
- BDCs: List of BDCs and more