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There are exceptions to every investing rule, including the one that says high dividend yields mean high risk.

Our case study: Cominar Real Estate Investment Trust, which in early November generated a yield of 7.8 per cent. That compares to about 5 per cent for the S&P/TSX Capped REIT Index, where Cominar is ranked ninth out of 15 by market capitalization. The savvy income investor begins an examination of Cominar with this question: Why is the yield so much higher than the index?

For answers, let's consult a recent note from Harry Levant of IncomeResearch.ca, an independent research firm specializing in income-producing stocks. Levant said Cominar is the third-largest diversified REIT in Canada, and the largest owner of commercial property in Quebec. The Montreal and Quebec markets account for almost three-quarters of Cominar's net operating income, a fact that explains the higher yield. "The lack of geographic diversification has kept share prices lower and yields higher than would normally apply when payout ratios are expected to remain in the low 90 per cent range," Levant wrote.

Payout ratios – which show what percentage of a company's earnings are paid out as dividends – are a way of assessing how well a company can afford its current pace of distributions. Levant describes Cominar's payout ratio as trending in a very favourably in a modest way. "There is very little dividend risk with Cominar," he writes. In fact, Cominar bumped up its payout to $1.47 from $1.44 per share in August.

Cominar is still being largely ignored by investors, though. The gain for the year through early November came in at less than half the 7-per-cent return for the capped REIT index, and the cumulative three-year loss of 14.7 per cent compares to an index gain of 11 per cent.

Certainly, Cominar's geographical concentration in Quebec is a risk for investors. Other risks noted by Levant include rising interest rates and the presence of an ownership control position. But the dividend is affordable, even if the high yield suggests otherwise.