Investors searching for strong passive income opportunities should look no further than Slate Grocery (TSX:SGR.UN). This high-yielding REIT provides an impressive forward dividend yield of 11% along with attractive upside potential.
For dividend investors, Slate Grocery checks all the boxes as an ideal stock to anchor an income-focused portfolio.
Grocery-Anchored REITs Offer Stability and Healthy Payouts
Slate Grocery is a specialized REIT owning and operating supermarket-anchored retail properties across the United States.
With grocery stores accounting for over half of all retail sales and demonstrating recession-resilient characteristics, Slate Grocery provides investors with a dependable and growing stream of rental income.
REITs owning grocery retail spaces have fared extremely well even amid broader economic uncertainty. As consumers continue frequenting supermarkets despite inflation or market volatility, properties with grocery tenants experience high occupancy rates and reliable rental income.
Slate Grocery is particularly well-positioned, with its portfolio including leading grocers with strong creditworthiness.
With inflation boosting grocery sales and a focus on necessity-based retail, Slate Grocery offers stability along with mouth-watering income generation.
Slate Grocery Overview: A Pure-Play Grocery REIT
Headquartered in Chicago, Slate Grocery owns and operates a substantial portfolio spanning over 15 million square feet of gross leasable space across 24 states. With 117 properties, the company has established itself as a major player in the grocery-anchored shopping center market across the United States.
Slate Grocery’s properties are primarily leased to grocery tenants, including leading chains like Kroger, Publix, Albertsons, and Ahold Delhaize. On average, grocers account for over 73% of annualized base rent generated from the REIT’s centers. This pure-play model provides investors focused exposure to the resilient grocery retail space.
Exceptional Third Quarter Performance Demonstrates Fundamental Strength
Slate Grocery recently delivered very strong third quarter 2022 results, demonstrating the favorable industry dynamics it is experiencing. The company signed over 690,000 square feet of new and renewal leases, achieving rates substantially above existing rents on the renewed space.
Additionally, at the end of Q3, Slate Grocery’s portfolio occupancy rate reached 94% alongside solid growth in same-property net operating income. With grocery retail conditions remaining positive in light of economic crosscurrents, Slate Grocery is poised to continue expanding its asset base and rental income.
Attractive Existing Portfolio Drives Further Upside Potential
Beyond positive recent results, Slate Grocery possesses several competitive advantages stemming from its current portfolio of assets that offer upside for investors.
With average annualized base rent of $12.37 per square foot, Slate Grocery’s spaces have room for further rent increases as rates remain below broader market averages. The REIT’s locations in growing markets across the Sun Belt and Midwest regions provide a backdrop for capturing additional rental growth.
Also importantly, around 25% of Slate Grocery’s leases expire within the next three years. As these spaces become available, the company can sign new leases at elevated rates, supporting continued growth in cash flows and dividends.
Disciplined Capital Management Ensures Stability Despite Rising Rates
Slate Grocery has taken a prudent approach to managing its balance sheet and leverage levels to ensure stability amid a rising interest rate environment. The vast majority of its outstanding debt carries fixed interest rates, with a weighted average rate of 4.2% on all debt.
With a conservatively managed debt load and grocery retail demonstrating resilience to recessionary pressures, Slate Grocery is well positioned to continue accessing attractively-priced capital for expansion. This financial foundation helps support the reliability of the REIT’s high dividends.
11% Dividend Yield Provides Attractive Monthly Income
Slate Grocery currently offers investors a very handsome 11% dividend yield, providing a steady stream of passive income. Based on the REIT’s latest quarterly dividend of $0.072 per share, an investment of $10,000 would generate over $913 in annual dividend income.
And beyond the initial yield, Slate Grocery has a proven history of delivering dividend increases to shareholders over time. With strong growth tailwinds at its back along with disciplined financial management, investors have reason for confidence in the reliability of the REIT’s payouts.
For income-focused investors, locking in an 11% yield from a specialized grocery retail landlord represents an appetizing opportunity.
Valuation Remains Reasonable Despite Strong Performance
Despite robust operational and financial results, Slate Grocery’s valuation multiple remains appealing for investors at current levels. With a price-FFO multiple of 8.4x, the REIT is attractively valued relative to both historical averages and grocery retail peers.
Backing out the generous dividend yield, Slate Grocery’s valuation adequately reflects recession resistance and sector tailwinds supporting continued bottom line expansion.
Analysts Highlight Strong Total Return Potential
Given the positive fundamental outlook along with an inflation-hedging business mix, analysts have a bullish perspective on Slate Grocery’s total return potential from current levels.
On average, analysts have a 12-month price target of $14, representing 28% upside from the REIT’s recent share price. Including Slate Grocery’s huge 11% dividend yield, total return expectations approach 40% over the next year.
For dividend investors seeking both a significant current yield and appealing capital appreciation upside, Slate Grocery offers an extremely compelling opportunity.
Conclusion: A Top-Choice Grocery REIT for Income and Growth
In an environment marked by volatility and uncertainty, Slate Grocery’s grocery-focused strategy provides investors inflation protection and reliable dividends. With multi-year tailwinds at its back and fundamentals continuing to strengthen, Slate Grocery checks all the boxes for dividend and income investors.
Offering stability, mouth-watering yield, and attractive upside potential, Slate Grocery stands out as a premier stock for passive income-seekers in today’s climate. Locking in an 11% yield from this specialized landlord seems like an obvious decision for investors aiming to round out an income-generating portfolio.