What are we looking for?
Top-performing securities within the Canadian real estate sector that exhibit high forecast dividend yields and positive value and momentum characteristics.
The screen
The S&P/TSX capped REIT total return index has returned almost 22 per cent so far this year, and while the index does not encompass the entire Canadian real estate sector, it does act as a good proxy of overall sector performance. While real estate performance has been a story in various Canadian regions, low interest rates and a steady supply of foreign investment should help provide further opportunity across the sector moving forward. This screen takes a look at companies trading on a Canadian exchange that are housed within the Global Industry Classification Standard real estate sector, which celebrates its one-year anniversary at the end of the month. The screen then filters results to include securities with a forecast dividend yield of at least 4 per cent for the next fiscal year.
Next, the Value-Momentum Starmine Sector ranking is included, a multifactor model highlighting value through the tendency of a stock to exhibit mean reversion and momentum by exploiting the inclination of long-term price trends to continue. Companies with a score of at least 70 have been included. Lastly, a price to adjusted funds from operations (AFFO) metric has been included to highlight residual income for real estate companies less adjustments for recurring capital expenditures.
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What did we find?
The screen yielded 16 companies, all of which have seen positive price returns so far year to date. True North Commercial REIT topped the screen with the highest forecast dividend yield of nearly 10 per cent as well as the highest value-momentum score among its peers. The company has benefited from high occupancy rates across a stable tenant base and should be looking to increase acquisition activity in the coming months to expand its asset base across larger markets.
This commentary does not provide individualized advice or recommendations for any specific subscriber or portfolio. Investors should conduct further research before investing.
Ryan Gottschalk works in the financial and risk unit of Thomson Reuters and specializes in asset management.