Yahoo Finance Just How Sustainable Is the Smashing 9% Yield of These 2 Stocks?
Written by Adam Othman at The Motley Fool Canada
The term “high yield” is subjective to investors, sectors, and markets. For some investors, everything above the 5% mark might qualify as high, while in some bear markets, even a 6% or 7% yield might not qualify as high because most slumped dividend payers might be offering yields at that or even higher levels.
However, some yields are considered high from almost all perspectives, and anything above 8% might qualify as that yield.
A REIT
PRO Real Estate Investment Trust (TSX:PRV.UN) is a commercial real estate investment trust (REIT) with a heavy industrial-property lean. About 74% of its portfolio is industrial assets, and the rest is retail and office properties. More than half of its gross leasable area is in Atlantic Canada.
The REIT has developed a sizable portfolio of 120 properties across the country and a decent tenant portfolio, including the Government of Canada, among its top 10 tenants responsible for 28% of the base rent the REIT collects.
From a stock performance perspective, PRO REIT is not a healthy pick per se. It’s trading below its pre-pandemic price point (and post-pandemic peak) of above $7 per share. The current “slump” is one of the reasons behind the amazing 8.65% yield the stock is offering.
As for the sustainability of the yield, there are two things you have to keep in mind. The first is that it already slashed its payouts in 2020 and might avoid a repeat cut as much as possible.
The second is that the adjusted funds from operations (AFFO) payout ratio, which is the go-to metric for measuring the financial sustainability of a REIT’s dividends, was over 90% in the last quarter. It’s on the safe side but not secure per se.
A mortgage company
Another stock related to the real estate market that hails from the financial sector is MCAN Mortgage (TSX:MKP). It’s offering a generous 9.3% yield, which has remained around that level for at least two years.
MCAN is a relatively small mortgage company, and like all other non-bank mortgage lenders, it has to compete with the financial giants that dominate this space. However, the company has done well enough for itself and has created a decently sized portfolio.
It’s not a good pick from a performance perspective, but it’s still a relatively safe one. It rose by about 19% in the last five years and currently boasts a low price-to-earnings ratio of 7.6, making it tastefully undervalued. The dividends are quite sustainable, considering its payout ratio of 68.6% and its dividend history. The company has been steadily growing its payouts for the past five years.
Foolish takeaway
From a sustainability perspective, MCAN Mortgage is clearly the better pick. It also outshines the other from the dividend history and capital appreciation potential angle. But the REIT is still a valid pick, especially if you would rather diversify your dividend picks instead of parking most of your capital in one stock.
The post Just How Sustainable Is the Smashing 9% Yield of These 2 Stocks? appeared first on The Motley Fool Canada.
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Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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