Monthly Dividend Stock In Focus: Slate Grocery REIT

Published on March 20th, 2023 by Nathan Parsh

Real estimate investment trusts, or REITS, are often a favorite of investors looking for generous dividend yields as these companies are required by law to distribute the vast majority of income to shareholders in the form of dividends.

Even better, a number of REITs distribute dividends on a monthly payment schedule which allows for regular cash flows. This can be a good opportunity for those investors that are in need of consistent, monthly payments.

There are just 86 companies that currently offer a monthly dividend payment. You can see all 86 monthly dividend paying names here.

You can download our full Excel spreadsheet of all monthly dividend stocks (along with metrics that matter, like dividend yield and payout ratio) by clicking on the link below:

One name that we have yet to cover is Slate Grocery REIT (SRRTF), a Canadian-based real estate investment trust that began paying a monthly dividend in 2014. The stock currently yields almost 9%, which is more than five times the average yield of 1.7% for the S&P 500 Index.

This article will evaluate the trust and its dividend to see if Slate Grocery could be a good candidate for purchase.

Business Overview

Slate Grocery is an unincorporated, open-ended mutual fund trust headquartered in Toronto and listed on the Toronto stock exchange. U.S. investors can purchase the name over-the-counter.

Though it’s based in Canada, Slate Grocery actually focuses on purchasing, owning, and leasing a portfolio of real estate properties in the U.S.

Source: Investor Presentation

Slate Grocery’s portfolio of nearly 120 properties is anchored almost exclusively by grocery stores. The trust has more than 15 million square feet of property. As of the most recent quarter, the portfolio was valued at just over $2 billion.

In 2022, Slate Grocery’s rental revenue grew substantially from $138.3 million to $177.5 million, an improvement of 28.3% year-over-year. Net income grew at an even higher rate of almost 59% to $138.9 million. However, expenses increased 34% to $50 million, mostly due to higher general and administrative expenses and interest and financial costs.

The trust was quite active on the acquisition front during the year as Slate Grocery purchased $422 million worth of properties. The trust also divested $54 million worth of properties in 2022.

Growth Prospects

Slate Grocery counts some of the largest grocery stores in the country as its tenants.

Source: Investor Presentation

Walmart Inc. (WMT), Kroger Corporation (KR), and Costco Wholesale Corporation (COST) are Slate Grocery’s three largest tenants. The first two names make up more than 16% of the total portfolio, which places a good number of properties with just two tenants.

Beyond Walmart and Kroger, however, no tenant accounts for more than 2.9% of the portfolio, providing Slate Grocery with a good amount of diversification amongst its clients. Only Walmart contributes more than 6.5% (8.5%) of annualized base rents as well. In addition, Slate Grocery leases properties to six of the top seven U.S. groceries by market share. This means that trust’s properties are visited by millions of people each week.

Expanding beyond just grocery stores, Slate Grocery has amongst its tenants 20 of the 25 largest consumer good distributors in the world, including Amazon.com Inc. (AMZN), Home Depot (HD), Lowe’s Companies (LOW), and CVS Health Corp (CVS).

The rise of e-commerce purchasing channels has changed the nature of the retail business. While this has impacted many types of retail companies, grocery stores have weathered these changes better than most.

Part of this is that grocery stores have turned to online ordering to drive sales to their businesses. The Covid-19 pandemic escalated this transition as grocery stores, along with many other businesses, had to change how they operated under severe social distancing guidelines.

But Slate Grocery’s tenants pivoted quickly to the point where 100% of the portfolio now provides omnichannel distribution, with most fulfilling e-commerce purchases from neighborhood store locations. The trust also has a presence in 23 of the top 50 metropolitan areas in country.

Inflation has been a headwind in many industries, but the majority of lease agreement have built in rental escalators which have helped to offset higher expenses for the trust.

With top names as tenants, multiple ways for customers to purchase goods, and a strong footprint of properties, Slate Grocery should continue to see at least solid growth rates moving forward.

Dividend Analysis

That growth should enable Slate Grocery to continue to pay its dividend, which yields 8.8% today. Slate Grocery has only raised its dividend for U.S. investors on several occasions, the most recent of which was for the January 15th, 2020 payment date.

While those investors looking for dividend growth will likely be disappointed, it should be noted that the dividend has not been reduced since the second ever monthly distribution in 2014. Slate Grocery’s annualized dividend is $0.864.

Future dividend payments are likely to be made as distributions are well covered by net income. In 2022, Slate Grocery’s distributions totaled $52.5 million, which represented just 38% of net income. This compares favorably to a 51% payout ratio in 2021.

Therefore, it appears likely that the dividend, which may not grow, is unlikely to be cut in the near future.

Final Thoughts

Monthly dividend paying stocks can provide more consistent cash flows. In addition to this, Slate Grocery offers a very high yield that appears very safe. The trust is also backed by high-quality tenants in some of the largest metropolitan areas in the U.S. Slate Grocery’s tenants have adapted to the changing landscape in retail by embracing the use of e-commerce to drive sales. Investors might find this combination an attractive investment opportunity.

If you are interested in finding more high-quality dividend growth stocks suitable for long-term investment, the following Sure Dividend databases will be useful:

The major domestic stock market indices are another solid resource for finding investment ideas. Sure Dividend compiles the following stock market databases and updates them monthly: