E Why Office Properties Income Trust Is A Deep Value Stock

Given also the aforementioned 3.0% expected growth in funds from operations and its 8.5% dividend yield, OPI can offer a 17.6% average annual total return over the next five years. Even if its price-to-FFO rises only up to 6.0, it will provide a 1.6% annualized valuation boost and thus the stock will offer a 10.9% average annual total return over the next five years. This expected return is certainly attractive, particularly given the rich valuation of the broad market.

Dividend

Thanks to its exceptionally cheap valuation, OPI is currently offering an 8.5% dividend yield. Such an abnormally high yield usually indicates the risk of an imminent dividend cut but this is not true in the case of OPI. The REIT has a healthy payout ratio of 47% and hence it can maintain its dividend, particularly if the pandemic subsides later this year. The dividend will come under pressure only in the unlikely scenario of a prolonged pandemic.

Final thoughts

Office Properties Income Trust is trading at an exceptionally cheap valuation level and is offering a markedly high dividend yield due to its high debt load and the coronavirus crisis. However, the REIT has proved fairly resilient to the pandemic while it is also in the process of reducing its debt load. Therefore, it is likely to begin to recover next year, and thus its stock is likely to greatly reward patient investors looking for real estate exposure in the upcoming years.

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William K. 2 months ago Member's comment

Thanks for the rather detailed analysis and an explanation of why this stock is so promising now.