What was once one of the best REITs to buy for long-term growth and dividend income, Granite REIT (TSX:GRT.UN) has faced significant headwinds recently, giving investors an excellent opportunity to buy the stock undervalued today.
In fact, with higher interest rates still cooling the economy, many of the top Canadian REITs continue to trade off their highs.
However, while vacancies increased in recent years and other macroeconomic headwinds impacted the entire real estate sector, Granite remains one of the most promising stocks to buy not just in the real estate sector, but in all of Canada.
So, let’s look at whether it’s worth buying today, with its stock price trading just below $70 per unit and its dividend yield now up to 4.9%.
Why is Granite REIT one of the most promising stocks in Canada?
Despite short-term headwinds facing real estate stocks in recent years, industrial REITs continue to benefit from long-term tailwinds, giving them significant growth potential over the coming years.
For example, the continuous shift by both retailers and shoppers toward e-commerce has increased the demand for warehouse space and distribution centres – the types of properties that Granite owns.
In fact, Granite owns 138 income-producing properties diversified across North America and Europe. Of those 138 properties, 96 are distribution centres or warehouses serving e-commerce businesses.
Furthermore, one of the biggest concerns that investors had with Granite was its significant exposure to Magna International, a challenge the company continues to address. For example, back in 2012, Magna accounted for 93% of Granite’s gross leasable area (GLA). However, as of the fourth quarter in 2024, Magna’s share of Granite REIT’s GLA has declined to just 19%.
So, although higher interest rates have weighed on the real estate market and caused vacancies to rise, those negative impacts already appeared to be plateauing in the second half of 2024.
Moreover, while higher vacancies concern investors, 94.7% of Granite’s 63.3 million square feet of warehouse space still has committed occupancy as of November 2024.
Granite has also addressed roughly 90% of its 2025 lease maturities in Europe and expects demand growth to resume significantly in its U.S. properties by the second half of this year.
So, while Granite REIT’s stock price trading this low may seem troubling, the REIT is actually well-positioned to generate strong income for investors today and continue growing for years to come.
Does Granite’s 4.9% distribution yield make it a buy?
One of the most compelling features of investing in Granite is its attractive dividend yield, especially with the stock selling off and the yield continuing to rise. However, the distribution is just one of many reasons why Granite is a screaming buy.
As I mentioned earlier, Granite has significant long-term growth potential. Plus, its yield – while just shy of 5% – is not only attractive but also highly sustainable and consistently growing each year.
In fact, Granite has raised its distribution for 14 straight years, earning its place among Canada’s Dividend Aristocrats. However, even as the dividend grows, its payout ratio continues to decline, proving how sustainable its payments are. For example, in 2024, Granite’s payout ratio of funds from operations (FFO) was just 62%.
And speaking of FFO, with the stock trading below $70 per unit, Granite now trades at a forward price-to-FFO ratio of just 12.4 times, an ultra-cheap valuation.
On top of that, while the stock is undervalued, Granite is actively buying back shares. For example, since December 30, 2024, the REIT has already completed over 120,000 unit repurchases.
Therefore, while this high-quality, high-potential REIT trades so cheaply, it’s not just a buy for its compelling dividend yield – it’s one of the best Canadian stocks you can buy now and hold for years.