One Liberty Properties, Inc. (NYSE:OLP) is a real estate investment trust or "REIT" that primarily invests in a wide variety of commercial properties including retail, industrial, and office complexes. Most of its leases are "net" which is good, as it means the tenants are responsible for the real estate taxes, insurance and even maintenance and repairs. This means the company has reduced risks and protected profit margins since rising expenses are passed onto the tenant. It has about 107 properties in 29 states and around 6.6 million in total square footage. This stock is down significantly from the 52-week high due to the pullback in many REIT stocks and in the overall market in recent days. However, the sell-off is overdone. This stock is cheap and worth buying now for a generous and rising dividend yield.
While a significant further rise in rates is a potential downside risk to consider, I do not view this as likely because rates have already started to back down from recent highs. The higher rates we saw recently seems to have already caused home sales to slow. Auto sales could also start to decline from the high growth rates. The ten-year Treasury Bond was yielding about 2% just a few months ago, then went to 3% and now it is at 2.6%. That's a whopping 30% increase in a short time that the economy will have to digest. I believe that rates have plateaued for quite awhile. Investing money in a cheap REIT stock like One Liberty Properties could lead to upside from both price appreciation and from the generous yield of over 7%.
Since this company primarily does "net" leases with its tenants, the risk of rising expenses from inflation is mitigated. This is another reason why this stock is attractive. Another reason why investors should consider this stock is because this company is growing. It also recently raised the dividend by 5.7% to 37 cents per quarter. The annual dividend is $1.48 per share which offers investors an above average yield of 7.1%. This yield is far better than what most REIT stocks pay as many yield only around 4 to 5%. I believe the main reason for this stock to be trading at undervalued levels (and therefore offering an above average yield), is due to the fact this is a smaller REIT. Because it is not as large as some of the most popular REIT stocks, it does not get as much analyst coverage and many investors don't know about it. That is what makes this a "hidden gem" for income investors.
This company has some very ideal tenants as it rents to Whole Foods (NASDAQ:WFM), CVS (NYSE:CVS), Fedex Corp. (NYSE:FDX) and many more. Having companies like these as tenants greatly reduces risks for shareholders because these companies are financially strong and are experiencing growth. Even if the economy were to slow down, industry heavyweights like Fedex and Whole Foods can keep on paying rent and that means shareholders in One Liberty Properties can rest assured that their dividends will keep coming.
This company has a solid balance sheet with just around $302 million in debt and about $19 million in cash. This conservative level of debt reduces risks for shareholders. Another big positive is that insiders have a significant stake in this company. There has been repeated insider buying throughout 2013 and even as recently as January 2014. Repeated buying is a good sign and it is even better when multiple insiders are purchasing shares. Insiders own about 21% of the outstanding shares and this means that they are aligned with the interest of other shareholders. Significant insider ownership can reduce risks for investors and the continued buying is also is a potential sign that the stock is undervalued. Some major institutional investors are also heavily invested in this REIT. For example, The Vanguard Group, Inc. owns about 1.2 million shares which is a stake of nearly 8% in this company.
There is another reason to buy this stock and that is for the dividend reinvestment plan. Once you are a shareholder, you can register to participate in a dividend reinvestment and stock purchase plan for additional purchases. The plan this company offers is exceptional because it allows for a 5% discount on the share price. This can help magnify returns for investors over the long-term.
In summary, a generous yield, a history of dividend increases, strong insider ownership and a undervalued share price, makes this stock a solid buy for income investors.
Here are some key points for One Liberty Properties:
Current share price: $20.75
The 52 week range is $19.60 to $27.74
Earnings estimates for fiscal year 2013: $1.64 per share
Earnings estimates for fiscal year 2014: $1.92 per share
Annual dividend: $1.48 per share which yields about 7.1%
Data is sourced from Yahoo Finance. No guarantees or representations
are made. Hawkinvest is not a registered investment advisor and does
not provide specific investment advice. The information is for
informational purposes only. You should always consult a financial
Disclosure: I am long OLP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.