Is Granite REIT Stock a Buy for its 4.3% Dividend Yield?

Granite REIT (TSX:GRT.UN) has a high yield, but is it a buy?

| More on:
Person uses a tablet in a blurred warehouse as background

Source: Getty Images

Granite REIT (TSX:GRT.UN) is a Canadian real estate investment trust (REIT) that acquires and develops industrial properties. “Industrial properties” is a broad category that includes warehouses, factories and data centres. Granite is one of the main REITs in this real estate sub-sector in Canada. It trades on both the TSX and the New York Stock Exchange.

Created with Highcharts 11.4.3Granite Real Estate Investment Trust PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

Granite REIT has many things going for it. Its growth over the last 10 years has been strong, with the top line averaging about 10% growth per year. In more recent years, the REIT’s earnings declined. However, they declined with revenue growth still being strong, which points to the possibility of more profitable years ahead.

Granite REIT is also highly profitable by some metrics; for example it has a 77% EBITDA margin and a 76.7% EBIT margin. EBIT and EBITDA are earnings metrics that include certain expense categories, investors use them to gauge future bottom-line profit potential.

So, Granite REIT has a lot of things going for it. Despite this, its stock has barely budged this year despite the company’s virtues. So it’s worth looking into whether GRT.UN has potential to do better in the future than it did in the past.

Dividend coverage

One factor that Granite REIT has in its favour is high dividend coverage. The stock has a $0.275 monthly dividend, which works out to $3.30 per year. At today’s unit price of $76.97, these dividends provide a 4.3% yield. In the last 12 months, GRT.UN had $3.66 in earnings, giving the stock a 90% payout ratio. This is quite satisfactory for a REIT (such companies are required by law to pay out most of their earnings as dividends).

Growth

Another factor that Granite REIT has going for it, which sets it apart from its sector, is growth. Its growth in revenue, profit, and free cash flow was quite solid over the last 10 years. In the last five years, the revenue growth was even faster than before (16% per year), but was offset by a steep rise in interest expenses that caused profit to decline. The Bank of Canada is cutting interest rates now, so it is likely that this expense category will decline in the coming quarters, leading to positive growth in earnings.

Profitability

Another factor that GRT.UN has going for it is profitability. In the last 12 months, it had a 77% EBITDA margin, a 76.7% EBIT margin, a 41% free cash flow margin and a 61% FFO margin. All of these metrics indicate high profitability. The 4.3% return on equity is a little underwhelming, but remember that this company’s cash flows are far greater than its reported earnings.

Valuation

Last but not least, Granite REIT is cheap by some metrics, trading at:

  • 18.2 times EBITDA.
  • 18.7 times EBIT.
  • 0.9 times book value.
  • 14.8 times FFO.

These multiples are fairly low. On the flip-side, the price/sales ratio (8.8) is rather high, implying that if GRT.UN loses its juicy margins, it will be worth less. However, the REIT is probably worth holding if present trends in its business persist.

Industrial properties are generally quite in demand and are not threatened by the “death of retail” phenomenon that threatens many REITs. Additionally, there are some truly lucrative niches within the industrial subsector, such as AI data centres. If Granite capitalizes on such opportunities, then it might well keep the big dividends coming for the long term.

Should you invest $1,000 in Constellation Software right now?

Before you buy stock in Constellation Software, 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 Constellation Software 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 $21,345.77!*

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 24 percentage points since 2013*.

See the Top Stocks * Returns as of 4/21/25

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 Andrew Button has no position in any of the stocks mentioned. The Motley Fool recommends Granite Real Estate Investment Trust. The Motley Fool has a disclosure policy.

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

Caution, careful
Dividend Stocks

3 New Red Flags the CRA Is Watching for TFSA Holders

Sure, investing can be tricky, and the CRA is always watching. But there's a way around high-risk trading.

Read more »

sale discount best price
Dividend Stocks

This Monthly Dividend Stock at $53 Is Too Cheap to Ignore

There are plenty of great dividend stocks on the market to consider buying, but this monthly gem is just too…

Read more »

ETF stands for Exchange Traded Fund
Dividend Stocks

The Best Canadian ETFs $1,000 Can Buy on the TSX Today

If you're looking for ETFs that can turn $1,000 into strong cash flow, then these are the ones I'd go…

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

Where I’d Invest my TFSA Savings in the TSX Today

If you want the stability of defence with the growth from tech, this is the ideal stock.

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

How I’d Invest $7,000 in My TFSA to Earn $50 in Monthly Income

High-yield stocks like Freehold Royalties, which is yielding more than 9%, are prime candidates for your TFSA.

Read more »

dividend growth for passive income
Dividend Stocks

4 Canadian Dividend Stocks to Buy and Hold for the Next 20 Years

These dividend stocks can certainly stand the test of time, and have already done so for many investors.

Read more »

Stethoscope with dollar shaped cord
Dividend Stocks

I’d Put My Entire $7,000 TFSA Into This Single Dividend Stock

TFSA investors can consider putting their $7,000 limit into a top-performing TSX stock in 2025.

Read more »

Happy golf player walks the course
Dividend Stocks

How I’d Turn $5,000 Into a Passive Income Stream This Year

These two high yield TSX stocks offer secured payouts, making them top bets to start building a passive income portfolio…

Read more »