Cominar Real Estate Investment Trust: Is This a 9.8% Yield You Can Count on?

Many investors are attracted to Cominar Real Estate Investment Trust (TSX:CUF.UN) and its 9.8% yield. But is it too good to be true?

The Motley Fool

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

As we wrap up 2015, I’m sure it’s been a year many investors in Cominar Real Estate Investment Trust (TSX:CUF.UN) would like to forget.

Thanks to various factors such as the threat of rising interest rates and the whole real estate sector falling out of favour among Canadian investors, shares of Quebec’s biggest landlord are down nearly 20% in 2015. The stock now yields an attractive 9.8%, a number that has to look very enticing to income investors used to settling for yields that are much lower.

Can investors expect this dividend to continue? Or will 2016 finally be the year that Cominar slashes the payout? Let’s take a closer look.

A year of transition 

Cominar really beefed up its portfolio in the latter half of 2014, adding more than 5.5 million square feet in gross leasable area from Ivanhoe Cambridge Inc., the real estate arm of Quebec’s pension plan. This acquisition of Quebec-based shopping malls was in addition to the 2.4 million in office and industrial spaces it acquired earlier in the year.

Altogether, Cominar boasts more than 45 million square feet in space, covering retail, office, and industrial uses. The vast majority of its property is located in Quebec, but it also has holdings in Toronto, Atlantic Canada, and Calgary. As of the end of the most recent quarter, the company had an occupancy rate of 92%, a slight decline from 94.1% a year ago.

The year was spent digesting the big acquisitions, and it looks like 2016 will be dedicated to paying down debt. The company’s debt-to-assets ratio is currently 53.8%, a number that investors don’t like. Most REITs like to keep that number under 50%. It’s moving in the right direction–it was 54.8% last year–thanks to the help of a couple of asset sales, but investors will want to see that number under 50% by the end of 2016.

The other concern is the company’s occupancy. Not only is occupancy going down, but many tenants are getting discounts as an incentive to stay. Thus far in 2015 the company has been able to retain nearly 69% of its current tenants, but it has reported a 1.7% decrease in net rent from these renewals. That signifies some weakness in Cominar’s key markets.

How about the dividend?

Many dividend investors don’t care about the price of their shares, as long as the dividend stays intact. Even though Cominar fell 20% in 2015, investors who held on the whole year would have gotten nearly half of the decline back in dividends. Thus, a 20% fall isn’t so bad.

But what about the dividend going forward? Here’s where it gets a little dicey. For the first nine months of 2015, Cominar posted $1.15 per share in adjusted funds from operations per share. It paid out $1.10 per share in distributions during that time, resulting in a payout ratio of more than 95%. Last year at this time, the payout ratio was 91.9%, which means 2015 did not move in the right direction.

Obviously, investors think there’s a chance the payout could be cut to free up cash flow to pay down debt.

There’s one potential saving grace. Cominar, like many other REITs, gives investors a discount if they take their dividends in the form of new shares. Since many investors take advantage of this deal, Cominar’s cash payout ratio only comes in at 64.7%.

Over the long term, this leads to a gradual dilution of shares to the tune of approximately 3.5% per year. This could lead to issues in the future, especially if rents don’t start to increase. But since most of these shareholders will opt to continue getting more shares in lieu of cash dividends, it shouldn’t be a major problem.

In short, it looks as though Cominar can sustain the dividend in 2016. Further reduction in the debt will also help, since interest savings flow straight to the bottom line. Still, with a payout ratio so high, investors should keep a close eye on Cominar and look at selling it if that ratio exceeds 100%.

Should you invest $1,000 in Barrick Gold right now?

Before you buy stock in Barrick Gold, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Barrick Gold wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Nelson Smith has no position in any stocks mentioned.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

dividend growth for passive income
Dividend Stocks

Why I’d Invest in Canadian Value Stocks for Both Stability and Growth

Three Canadian value stocks are buying opportunities for investors looking for stability and growth.

Read more »

investment research
Dividend Stocks

Got $15,000? 3 Blue-Chip Stocks Every Canadian Should Consider

Here's why investing in blue-chip TSX stocks such as CNQ and CNR should derive outsized gains in 2025 and beyond.

Read more »

protect, safe, trust
Dividend Stocks

Where I’d Allocate $20,000 in 2 Safer High-Yield Dividend Stocks for Retirement Needs

Here are two safer, high-yield dividend stocks I'm looking at for my retirement needs.

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

3 Reasons I’m Considering Enbridge Stock for a $5,000 Investment This April

I'm considering Enbridge stock to provide some defensive appeal and a juicy dividend to my long-term portfolio.

Read more »

monthly desk calendar
Dividend Stocks

A 9.2% Dividend Stock Paying Cash Every Single Month

With one of the highest dividends out there, this dividend stock deserves attention in your portfolio.

Read more »

Happy golf player walks the course
Dividend Stocks

Build a Powerful Passive Income Portfolio With Just $20,000

If you are worried that the bear market could reduce your savings, these stocks can build a powerful passive income…

Read more »

Hand Protecting Senior Couple
Dividend Stocks

How I’d Use My $7,000 TFSA Contribution to Start Retirement Planning

These TSX stocks have solid fundamentals and are well-positioned to deliver significant tax-free total returns over time.

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

How to Turn Your TFSA Into a Gold Mine Starting With Only $10,000

It doesn't have to be complicated or scary. You can turn any portfolio into a major gold mine.

Read more »