Buy Alert: Lock In This 7.5% Dividend Yield by December 31

Inovalis REIT (TSX:INO.UN) is a rare breed of income stock that could make you filthy rich. Here’s why it’s one of the timeliest bets on the TSX Index.

| More on:

You shouldn’t expect many sharp moves in a real estate investment trust with a low beta of 0.4. Inovalis REIT (TSX:INO.UN) typically sports a yield that’s north of the 8% mark, but the yield recently shrunk to 7.5% due to a substantial amount of capital appreciation that’s occurred over the past year.

Inovalis is up a staggering 20% year to date. If you picked up shares as I suggested when the name had an 8.2% yield, you’d still be collecting 8.2% per year off your invested principal, and you’d be up considerably on a name that’s been fluctuating in a narrow consolidation channel over the past six years.

Despite sporting a now slightly lower yield, Inovalis is still a rare breed, a super-high-yielding security with a stock that’s at all-time highs.

What happened?

Not only has the overall appetite for bond proxies gone up over the past year, but Inovalis continues to deliver exceptional results.

For the third quarter, Inovalis clocked in $0.23 per unit in funds from operations (FFOs) for the third quarter and $0.21 per unit in adjusted funds from operations (AFFOs). AFFO payout ratios improved on a quarter-over-quarter basis from 98.6% to 97.3%, with FFO payout ratios improving from 101.4% to 88%. The third-quarter results served as further rally fuel for the name that remains mostly under the radar of most investors.

The slight AFFO and FFO payout ratio reductions for the quarter were encouraging and are a sign that the distribution is not only safe but subject to further growth at some point over the next three years.

Now, if you’ve got a 7.5% yield, one would think you’d be more concerned about the sustainability of the payout, and not the potential for further payout hikes.

Since Inovalis is a small-cap REIT with a mere $263 million market cap, the firm has enough agility to grow its distribution at a quicker rate than most behemoths that have substantially lower yields.

Management is looking to build upon its already impressive portfolio of urban office properties located across France and Germany. And as its AFFOs grow, so too will the distribution and shares of the name.

The third quarter was solid, but it didn’t break analyst expectations because the name isn’t covered by a big-name sell-side analyst on Bay Street!

If it were, I suspect analysts would be raising the price target and pounding the table on a REIT that could one day grow to become a household name for risk-averse income investors. When that time comes, don’t expect Inovalis to have such a massive yield, though, as potential share price appreciation could drag the yield down.

Stay hungry. Stay Foolish.

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 Joey Frenette has no position in any of the stocks mentioned. The Motley Fool recommends Inovalis REIT.

More on Dividend Stocks

hand stacks coins
Dividend Stocks

3 Ultra-High-Yield Dividend Stocks You Can Buy and Hold for a Decade

These three high-yield dividend stocks still have some work to do, but each are in steady areas that are only…

Read more »

senior man and woman stretch their legs on yoga mats outside
Dividend Stocks

TFSA: 2 Canadian Stocks to Buy and Hold Forever

Here are 2 TFSA-worthy Canadian stocks. Which one is a good buy for your TFSA today?

Read more »

calculate and analyze stock
Dividend Stocks

This 5.5% Dividend Stock Pays Cash Every Single Month!

This REIT may offer monthly dividends, but don't forget about the potential returns in the growth industry its involved with.

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

How to Use Your TFSA to Earn up to $6,000 Per Year in Tax-Free Passive Income

A high return doesn't mean you have to make a high investment -- or a risky one -- especially with…

Read more »

path road success business
Dividend Stocks

2 High-Yield Dividend Stocks to Buy Hand Over Fist and 1 to Avoid

High yields are great and all, but only if returns come with them. And while two of these might, another…

Read more »

Man holds Canadian dollars in differing amounts
Dividend Stocks

This 7% Dividend Stock Pays Cash Every Month

A high dividend yield isn't everything. But when it pays out each month and offers this stability, it's worth considering!

Read more »

young people stare at smartphones
Dividend Stocks

GST/HST “Vacation”: Everything Canadians Need to Know

The GST/HST "vacation" is a little treat for the holidays, along with a $250 payment. What should you do with…

Read more »

Train cars pass over trestle bridge in the mountains
Dividend Stocks

Is CNR Stock a Buy, Sell, or Hold for 2025?

Can CNR stock continue its long-term outperformance into 2025 and beyond? Let's explore whether now is a good time to…

Read more »