This Canadian Dividend Stock is Down 21.4% and Worth Holding for Decades

By Brian Paradza, CFA at The Motley Fool Canada

Real estate investments have long been a reliable source of recurring monthly income and capital appreciation over decades – when managed properly. Canadian Real Estate Investment Trusts (REITs) make the process even easier, giving small portfolios access to high-quality, professionally managed real estate. But sometimes, the best income opportunities come when the market hands you a discount on a reliable, undervalued TSX dividend stock.

Canadian Apartment Properties Real Estate Investment Trust (TSX:CAR.UN), better known as CAPREIT, is the largest apartment portfolio on the Toronto Stock Exchange. Going into the second quarter, the REIT owned a $14.5 billion portfolio of 44,768 Canadian residential suites plus more than 600 units in the Netherlands.

Units have taken a beating recently, suffering a 21.4% price drop over the past 12 months. The residential REIT sector has faced headwinds from Canada’s negative population growth as immigration rates turned negative in 2025, combined with cuts to student visa numbers. While the non-permanent resident population may continue shrinking in 2026, the Parliamentary Budget Office (PBO) expects population growth to flatten this year before turning positive again by 2027. For residential landlords like CAPREIT, the worst could be over.

CAPREIT trading at a massive discount

Despite the gloomy market sentiment, CAPREIT’s portfolio remains rock-solid. Occupancy rates stayed high and respectable at 97.1% going into the second quarter of 2026, while average monthly rents continue creeping upward. The most exciting story for value investors is the REIT’s valuation.

CAPREIT units trade at a staggering 35.8% discount to net asset value (NAV). At the most recent measurement date in March, the REIT’s fair value was $55 per unit. Today, CAR.UN units are changing hands at just $35.31. That’s a significant disconnect between public market pricing and underlying asset value.

Management is capitalizing on this opportunity in a big way. It’s selling none-core assets at or near their NAV, and repurchasing undervalued units on the market. In a recent investor presentation, CAPREIT disclosed it had repurchased approximately $61 million worth of units at a 34% discount to NAV. Essentially, remaining unit holders are buying out sellers at a huge discount while the REIT disposes non-strategic assets at net asset value. Profitable investment deal indeed!

A reliable dividend stream

The unit price drop has pushed the REIT’s monthly distribution yield to 4.4% annually. The REIT paid out just 60.7% of its funds from operations (FFO) during the past 12 months, suggesting the payout is well covered by distributable cash flow despite some non-core asset sales.

Most noteworthy, CAPREIT has raised distributions by an incredible 117% since its inception in 1997. The most recent increase came in February 2025 with a 3.2% bump. Remember, REITs are required to distribute most of their earnings to maintain tax-exempt status, making them ideal vehicles for passive income generation.

Why hold the undervalued dividend stock for decades?

Concerned about an economic slowdown? About 75% of CAPREIT’s Canadian suites rent for below $2,000 monthly. They are affordable options in cities like Toronto, Montreal, Vancouver, Calgary, and Halifax. Affordable housing rarely goes out of demand.

The recent going-private transaction with European Residential Real Estate Investment Trust (ERES) gives CAPREIT full control of 1,029 residential suites in the Netherlands, including 410 classified as held for sale. This fortifies diversification and the growth potential of the portfolio.

Population growth will return to Canada, and economies will continue expanding despite brief declines. Therefore, residential rental markets will thrive again as they provide essential accommodation needs for growing communities. Right now, CAPREIT offers exposure to Canadian and European residential real estate at a compelling discount. Long-term oriented income investors may wish to lock in the undervalued dividend stock’s discount before units recover.

One important note for tax-savvy investors

A significant portion of CAPREIT’s monthly distributions is generally taxable as ordinary income (not eligible for Canadian dividend tax credits). For this reason, it’s advisable to buy and hold this undervalued Canadian REIT in a tax-advantaged account, especially your TFSA.

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