Often, the cheapest value stocks will also offer a succulent yield.
Some investors will stay away for that reason alone, mostly because they don’t want to get caught up in a potential dividend cut.
But those kinds of stocks offer some of the best total return possibilities in today’s market. Capital appreciation plus an outsized yield? What’s not to like?
Artis Real Estate Investment Trust (TSX:AX.UN) is one such opportunity today. The owner of 241 different properties in Canada and the United States is quite undervalued.
First, the dividend. In 2016, Artis generated $1.55 per share in funds from operations, a metric which REIT investors use as an earnings substitute. It paid out $1.08 per share in dividends. That’s a payout ratio of under 70%.
REITs tend to target an 80% payout ratio. Artis shares currently offer one of the best yields out there, 8.3%.
It isn’t often investors can get such a high yield combined with a low payout ratio.
Shares are cheap on an earnings basis as well. Artis currently trades at $13.06. Shares earned $1.55 each last year. That puts the company at just 8.4 times funds from operations. You won’t find many REITs with a lower multiple.
Artis also trades at a discount to the value of its assets. At the end of its most recent quarter, the company’s management estimated net asset value to be $14.12. That puts shares at a discount to NAV of nearly 8%.
Remember, approximately 30% of Artis’s assets are in Alberta. As the province recovers, so will the company’s net asset value.
