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Inside the Market Wednesday’s TSX breakouts: A REIT with an 8% yield and payout ratio sub-80%

On Tuesday, major North American stock markets all closed the trading session with losses.

In the U.S., the Dow Jones Industrial Average decreased 0.55 per cent, the S&P 500 index lost 0.29 per cent, and the Nasdaq composite index declined 0.12 per cent.

In Canada, the S&P/TSX composite index fell 62 points, or 0.40 per cent. There were 106 securities in the TSX Index that advanced, 140 securities declined in value, and five stocks closed the day unchanged. Just four sectors closed with gains led by strength in the real estate sector, which advanced 0.69 per cent.

The TSX Index is up 2.19 per cent year-to-date.

On today's TSX Breakouts report, there are 38 stocks on the positive breakouts list (stocks with positive price momentum), and 23 stocks are on the negative breakouts list (stocks with negative price momentum).

As always, I try to highlight a variety of securities that may appeal to a wide range of investors. Featured today is a real estate investment trust (REIT) with an attractive yield of 8 per cent and a distribution that appears sustainable with its payout ratio sub-80 per cent. The unit price has positive price momentum, rallying 11 per cent year-to-date. Analysts are forecasting the unit price will continue to increase with a further gain forecast of between 16 per cent and 18 per cent. With a market capitalization of $106-million, the REIT is below the $200-million market cap screening threshold and as a result has never appeared on the breakouts list. The security I am referred to is Nexus Real Estate Investment Trust (NXR.UN-X).

A brief outline is provided below that may serve as a springboard for further fundamental research.

The REIT

Several weeks ago, Edgefront Real Estate Investment Trust and Nobel Real Estate Investment Trust merged into a combined REIT, renamed Nexus Real Estate Investment Trust. Earlier this month, Edgefront REIT units began trading under the name Nexus Real Estate Investment Trust while units of Nobel REIT ceased trading on March 31.

Nexus REIT owns a portfolio of 36 properties and is focused on acquisition growth.

Distribution policy

The REIT pays its unitholders a monthly dividend of 1.333 cents per unit, or 0.16 per unit on a yearly basis. This equates to an annualized distribution yield of 8 per cent. Based on the 2017 AFFO consensus estimate, the payout ratio will be 78 per cent.

Analysts' recommendations

There are just two analysts who covers this REIT, Robert Sutherland from Echelon Wealth Partners and Frederic Blondeau from Eight Capital. Both analysts have 'buy' recommendations.

Revised recommendations

Earlier this month, Robert Sutherland, an analyst at Echelon Wealth Partners, lifted his target price to $2.35 from $2.20. In February, Frederic Blondeau, the analyst from Eight Capital, increased his target price by 15 cents to $2.30.

Financial forecasts

The consensus funds from operations (FFO) per unit estimates are 20.5 cents for 2017 and 21 cents for 2018. The consensus adjusted funds from operations (AFFO) per unit forecasts are 20.5 cents for 2017 and 22 cents for 2018.

Valuation

The REIT is trading at a price-to-FFO multiple 9.7 times the 2017 consensus estimate.

The two target prices are $2.30 and $2.35, implying a potential price gain of between 16 per cent and 18 per cent.

Chart watch

The unit price has positive price momentum, climbing 11.2 per cent so far in 2017.

The unit price is sitting at a major overhead resistance level, around $2. Should the unit price fail to break above this resistance level, there is downside support between $1.90 and $1.95, which is close to its 50-day moving average (at $1.94). Failing that, there is strong support around $1.80, close to its 200-day moving average (at $1.83).

The REIT can be thinly traded. The three-month historical daily average trading volume is approximately 38,000 units.

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The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company's dividend policy, analysts' recommendations, and provides a brief technical analysis for a security to provide readers with more information.

If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.

Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.

A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.

TSX breakouts

Positive BreakoutsApril 18 close
AGF.B-TAGF Management Ltd $6.48
AQN-TAlgonquin Power & Utilities Corp $13.03
AP.UN-TAllied Properties Real Estate Investment $37.83
AYA-TAmaya Inc $23.39
AX.UN-TArtis Real Estate Investment Trust $13.67
APR.UN-TAutomotive Properties REIT $11.34
BEP.UN-TBrookfield Renewable Energy Partners LP $41.89
BTB.UN-TBTB Real Estate Investment Trust $4.87
CAR.UN-TCanadian Apartment Properties REIT $34.50
CGO-TCogeco Inc $66.40
BCB-TCott Corp $17.19
CRH-TCRH Medical Corp $12.10
CRR.UN-TCrombie Real Estate Investment Trust $14.71
DOL-TDollarama Inc $118.01
ECI-TEnerCare Inc $21.01
FNV-TFranco-Nevada Corp $93.30
WN-TGeorge Weston Ltd $117.63
GIL-TGildan Activewear Inc $36.91
GRT.UN-TGranite Real Estate Investment Trust $48.93
PJC.A-TJean Coutu Group $21.60
KMP.UN-TKillam Apartment REIT $13.14
KPT-TKP Tissue Inc $16.13
L-TLoblaw Cos Ltd $72.92
NCC.A-TNewfoundland Capital Corp Ltd $10.60
NVU.UN-TNorthview Apartment REIT $22.89
NVA-TNuVista Energy Ltd $6.95
PEO-TPeople Corporation $5.36
PBH-TPremium Brands Holdings Corp $86.04
AAR.UN-TPure Industrial Real Estate Trust $6.45
RPI.UN-TRichards Packaging Income Fund $27.77
RCI.B-TRogers Communications Inc $61.42
SIS-TSavaria Corp $14.50
ZZZ-TSleep Country Canada $35.72
SJ-TStella-Jones Inc $43.47
SMU.UN-TSummit Industrial Income REIT $6.59
X-TTMX Group Ltd $74.08
VSN-TVeresen Inc $15.48
WCN-TWaste Connections Inc. $118.78
Negative Breakouts
AFN-TAg Growth International Inc $49.68
AGU-TAgrium Inc $123.01
BNP-TBonavista Energy Corp $3.17
CS-TCapstone Mining Corp $1.07
CNL-TContinental Gold Inc $3.50
CPG-TCrescent Point Energy Corp $14.04
GMP-TGMP Capital Inc $3.44
HBM-THudBay Minerals Inc $8.11
KDX-TKlondex Mines Ltd $4.84
LIF-TLabrador Iron Ore Royalty Corp $16.61
LMP-TLumenpulse Inc $11.83
LUN-TLundin Mining Corp $7.09
DR-TMedical Facilities Corp $16.75
NA-TNational Bank of Canada $54.49
NAL-TNewalta Corp $1.99
NG-TNovagold Resources Inc $5.96
PEY-TPeyto Exploration & Development Corp $26.40
RUS-TRussel Metals Inc $25.23
TKO-TTaseko Mines Ltd $1.46
TV-TTrevali Mining Corp $1.10
TRQ-TTurquoise Hill Resources Ltd $3.72
VRX-TValeant Pharmaceuticals International Inc. $11.99
Y-TYellow Pages Ltd $7.25

Source: Bloomberg

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