1 Canadian Dividend Stock Down 12% to Buy Now and Hold for Years

Canadian Apartments REIT (TSX:CAR.UN) is among the top Canadian real estate investment trusts (REITs) that I think investors may want to consider heading into a continued interest rate-cutting cycle.

Yes, that cycle has been paused for now. However, with CAP REIT’s recent 12% decline over the past year (and down much more over the past five years), one could argue that this company’s underlying fundamentals aren’t being seen by market participants.

Here’s why I think CAP REIT could be worth investing in, before we see significant interest rate declines through 2026 and 2027.

Interest rates matter a great deal for REITs

With the Bank of Canada poised to slash rates further into 2026 and 2027, this multi-family powerhouse is primed for a breakout. Interest rate relief will turbocharge its balance sheet, ignite property values, and juice those juicy distributions you crave for passive income.

Why CAP REIT? Well, let’s start with the basics. This is Canada’s largest owner of apartments, boasting over 66,000 suites across prime markets like Toronto, Montreal, and Vancouver. These aren’t cookie-cutter units. They’re in high-demand urban cores where rental demand outstrips supply thanks to chronic housing shortages and immigration inflows.

Same-property net operating income (NOI) has been grinding higher, with Q3 2025 showing 97.8% occupancy and rents climbing 4.4% year over year to $1,709 monthly. That’s pricing power in action, even amid economic wobbles.

Now, layer on the rate tailwind. REITs like CAPREIT got hammered by the rate-hike era, trading at a whopping 19% discount to net asset value (NAV). But as the Bank of Canada eyes more interest rate cuts (potentially dropping the policy rate below 3% by late 2026), borrowing costs plummet.

CAP REIT’s debt is already well-laddered with mid-3% financings locked in for years, giving it a fortress balance sheet (debt-to-gross book value around 42%). Lower rates mean cheaper refinancings, more acquisition firepower, and reduced payout ratios for safer dividends.

The bottom line is I think CAP REIT’s 4.3% dividend yield is well covered and should be supported for many years and decades to come.

A transformation underway

Management is not sitting idle, either. They’re executing a brilliant transformation in dumping $410 million in non-core Canadian assets and $783 million in Europe last year. The company then recycled $659 million of these funds into premium, low-capex buildings. Such investments included the 436 suites picked up in Laval for $178 million.

This pure-play Canadian focus sharpens returns, with buybacks of $200 million at $43 per unit suggesting that the current share price, closer to $36 per share, is a screaming buy. I’d have to agree.

Now, there are certainly risks to consider with any REIT in this environment. Given global inflationary pressures, interest rates may not actually be headed lower. They could rise. And potential rent controls in Ontario and Quebec could lead to pressure on occupancies over the near term.

But at a forward price to funds from operations multiple under 15 times (a key benchmark for this industry), I think CAP REIT is a screaming buy relative to its peers right now.

The post 1 Canadian Dividend Stock Down 12% to Buy Now and Hold for Years appeared first on The Motley Fool Canada.

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More reading

• 2 Dividend Stocks to Lock In Now for Decades of Passive Income
• 3 Canadian REITs for an Income Portfolio That Holds Up in Any Market
• 3 Dirt Cheap Stocks to Buy With $1,000 Right Now
• 3 Undervalued TSX Stocks That Could Surprise Investors in 2026
• 3 Top REITs to Buy for March

Fool contributor Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.