Welcome to the inaugural Stocktrades Income Seeker weekly newsletter.
Before we get into the content, we just wanted to set the stage regarding what you can expect every week. Unless impacted by statutory holidays, emails get sent out every Sunday – typically in the late to mid-afternoons.
Weekly, we will notify members of any new Bull List selections (as we are doing this week!), answer member Q&As if we feel the answer might be relevant to all members, cover macro events, and provide in-depth educational content.
During earnings season (which we are heading into now), we also like to do recaps of all stocks on our Foundational Stocks Lists and those on the Dividend Bull List.
If ever you want us to cover a topic in further detail, please feel free to email us or drop your suggestions by tagging us in our Discord. We have a running list of key topics, but if members are interested in something in particular, then we will make it a priority.
Finally, it is worth noting that all these emails are archived under the “Premium Content” of the website, so you can go back and reference them at any point.
With that said, we are excited to announce a new addition to our Dividend Bull List!
We’ve added Allied Properties REIT (AP.UN) to the Bull List
There is no question that REITs are facing a complex macro environment. The rapid pace of rate hikes and inflation not only make it more expensive for REITs to grow, but they cannot raise rents fast enough to keep pace.
It is why the entire sector has underperformed over the past year. While REITs have had a great start to the year, we do not expect the difficult environment to change any time soon. Rate hikes are still coming, and the threat of a recession looms large.
Since the pandemic began, we have also been hesitant to invest in office REITs. We know that “work at home” has now become permanent among several employers and the demand for office space isn’t what it was pre-pandemic.
So why add a REIT today and an office one at that? For starters, we always take the long-term view. So while the macro environment may not favour REITs today, that will eventually change and accumulating strong companies in times of weakness is a tried and true strategy.
So why Allied Properties over the others? The answer is straightforward. For starters, the company has one of the best balance sheets among all TSX-listed office REITs. While debt has been creeping up, it still has some of the best coverage ratios in the space.
Secondly, the company’s core portfolio is made up of low-cost urban workspaces. This just so happens to be the fastest-growing sub-segment of the office industry. Yes, it is a growing segment and one that is expected to expand as employers look for smaller, more efficient workspaces.
Thirdly, Allied has an attractive distribution which currently yields ~6%. Allied has put together an 11-year distribution growth streak, which is tied for the second-longest among all TSX-listed REITs. We expect that growth streak to be extended as it has a respectable FFO payout ratio of 72%.
Finally, Allied is looking to undergo a strategic shift. In January, the company announced it plans to dispose of its urban data centers (UDC) portfolio. With an IFRS value of ~$1.3B, proceeds from the sale are expected to be used to pay down debt, fuel growth in its core segment and potentially buy back shares. The expectation is that the interest saved on the sale will offset the potential earnings loss.
In our opinion, this is a positive catalyst for the company. Even if the sale doesn’t materialize, Allied is still attractively priced as it is trading at a 42% discount to Net Asset Value. Considering its financial position relative to others in the industry and its strong distribution, we believe it provides an attractive risk-to-reward ratio.
As always, if you want to learn more, please check out our full report by clicking the link below.
Click here to read our full report on Allied Properties
Earnings Recap
Lockheed Martin (LMT)
Foundational stock Lockheed Martin delivered a strong fourth quarter. Earnings of $7.79 beat by $0.42, and revenue of $18.99B beat by $740M. The company also exited the year having generated $6.1B in free cash flow, topping guidance. On its quarterly conference call, it also noted that the $150B in backlog was achieved on the back of “all-time record orders for Lockheed Martin.”
The company also announced its Fiscal 2023 outlook, in which it expects the following:
• Net sales of ~$65B to $66B
• Diluted EPS of ~$26.60 to $26.90
• Free cash flow: ~$6.20B
These were pretty much in line with consensus, so there are no real surprises here. All in all, it was a solid quarter, and the company is simply doing its thing.
