Finding the right dividend-paying companies can be really tricky. Even further, finding the right companies that ensure your portfolio is diversified outside of Canada can be even harder. Despite what you might think, it is very important that your portfolio have more than just Canadian exposure, and more than just exposure south of the border. Your portfolio should have exposure to companies in other parts of the world.
One country that is definitely worth keeping an eye on is Germany. Unlike many of the other countries around the world, it is tremendously stable. Its unemployment rate is under 5% and its people are making pretty good money. This has allowed for an increase in investment, which Dream Global REIT (TSX:DRG.UN) has been able to capitalize on.
Dream Global is a recently IPO’d company, having only been in existence since 2011. Its focus is on growing the commercial real estate portfolio across seven main German cities.
Across the entire country, Dream Global has nearly 15 million square feet. For the most part, it has got a diversified tenant base, except for one: Deutsch Post. This group occupies close to 30% of Dream Global’s available space. The company knows that it needs to decrease this further, and it has made giant steps since it went public; at one point, it was 85%.
But what always has investors excited is the fact that Dream Global has a yield of 7.88%. As an investor, you’re going to make a lot of money.
But there are also some concerns. The company has a payout ratio of 92%, which tends to be on the higher side of REITs. That can be concerning because if it has a particularly bad year, it won’t have a lot of leeway before having to cut the dividend. Any cut could immediately send this company down 20% in value.
Another risk is that you’re not going to get a raise anytime soon. If the company had a payout ratio of 75%, there might be room to increase the dividend. But at 92%, there’s nowhere to go. This isn’t a terrible thing, but I like getting raises at my full-time job, so for those that get paid from Dream Global, getting a raise would be nice, too.
However, if you’re looking at Dream Global as a long-term investment and don’t need the money now, you can take advantage of the 4% discount offered for reinvested dividends.
So, the question you have to ask is whether Dream Global is a safe investment or not. I do believe it risky, but I also think that it is situated in a safe part of the world. Germany has its economics figured out, so I have little concern there. And Dream Global is continuing to diversify the companies that lease from it, so that will prevent even more volatility.
And the good news is that the stock has been trending down the past couple of days. If this continues, you might be able to find a really decent point of entry and start acquiring shares, thus allowing you to generate even more revenue. Starting a position now and seeing where things go would be a prudent way to play this stock.
