“You’ll Be a Walmart Millionaire Within 18–24 Months!”

By Travis Johnson, Stock Gumshoe, December 6, 2010

That headline comes from the top of the latest teaser ad from Roger Conrad for his Canadian Edge newsletter — and he usually recommends relatively sedate high-income investments like utilities and Canadian trusts, which made the pitch for this idea stand out as a bit extra-hypey for him … and therefore, of course, I wanna know what the stock is.

Here’s how he introduces this “Walmart Millionaire” stock:

“This is like walking down the street and picking up hundred-dollar bills… You might as well go ahead and add three zeros to your brokerage account balance!

“You’ll Be a Walmart Millionaire Within 18–24 Months! Without EVER Buying a Single Share of Walmart Stock…

“Your profits are guaranteed by the world’s largest retailer. This is the fastest, safest, most reliable way to grow your investment capital in 2011.”

This, like the (very different) older pitch for Deer Consumer Products (DEER) that I sniffed out early this year, is a “buy the companies that have a deal with Walmart” pitch — if you missed your chance to become a Walton bazillionaire by buying the stock back in 1980, can you catch up by buying a stock that will get a lift from its relationship with the world’s largest retailer going forward?

As Conrad puts it,

“Find companies that have recently signed a new deal or are expanding an existing relationship with the world’s biggest retailer, and you’ll retire a wealthy man in a decade or less.

“Time and time again, when this 900-pound gorilla partners with a small, publicly traded company, that company’s stock skyrockets into the stratosphere….

“In my research department, we’ve dubbed it…

“The Walmart Wealth Effect”

So that’s nothing all that new or revolutionary, of course — even though a relationship with Walmart can be a double-edged sword for a small supplier, thanks to the relentless cost pressure that Sam Walton’s minions are trained to apply to widget-makers, it also opens up a huge new market and gets your product into these hugely popular stores. If you sell to Walmart, and you can keep your costs low enough to maintain some semblance of a profit margin, your sales have a chance to explode.

But this isn’t the typical “Walmart supplier” teaser about a small company about to open a new market, even though that’s how Conrad’s copywriter makes it sound at first. Here’s more from the ad to explain:

“If you think selling eggs to Walmart makes a stock pop, imagine being Walmart’s landlord for the next 50 years!

“I’ve identified a brand-new opportunity for you to fully leverage the Walmart Wealth Effect… all the way to the bank!

“Up until recently, Walmart was buying more than $800 million worth of land EACH MONTH…

“Today, Walmart has the same ravenous appetite for land. But the retail giant is leasing properties. Not buying.

“Walmart’s strategic plan in North America during the next few decades calls for leasing property to penetrate big urban areas like the District of Columbia, Philadelphia and New York City.

“And after successfully testing prototype models, the big-box behemoth is poised to begin a neighborhood rollout in 2011 of its smaller-format, higher-end Marketside stores.

“After carefully evaluating over 130 different companies and 9 Indian tribes during the past year and a half, I’ve identified one Real Estate Investment Trust that is going to end up being the BIG Walmart winner!”

So there you have it — I may quibble with the idea that being one of Walmart’s landlords is a more “leveraged” way to get the “Walmart wealth effect” than investing in a small company with a new Walmart distribution deal, but it’s certainly a more likely way to get current dividend income from a Walmart-related investment … and it’s probably likely to be a more stable stock.

So which REIT is it that Conrad sees as the best way to get a “pop” from Walmart?

Thankfully, we get a few more clues:

“This Real Estate Investment Trust is exclusively focused on retail real estate. Their core strategy involves leasing neighborhood shopping centers anchored by supermarkets.

“The Trust owns and manages a huge portfolio of popular shopping centers in big urban areas in Canada and the northeastern United States. Their ownership interest contains an aggregate of over 60 million square feet.

“My top-secret recommendation has already inked multiple lease agreements with the world’s biggest retailer. The term on these lease agreements is typically 20 years, plus six 5-year renewals, for a total of 50 years!

“Of course, Walmart isn’t their only blue-chip client. The Trust has a diverse roster of Fortune 500 clients including Safeway and Giant grocery stores, Lowe’s, PetSmart and Staples….

“In the third quarter, the Trust completed six acquisitions. This new pool of earnings has not yet been factored into the future monthly distribution payments to unit-holders.

“I would conservatively estimate this Trust could end up skyrocketing by more than 400% over the next few quarters, no matter what happens in the U.S. economy or the stock market.”

So that’s about all we get by way of clues — let me just feed all that into the Thinkolator, hit the US: Canadian translation switch … and, there! This must be …

Riocan Real Estate Investment Trust (REI.UN or REI-UN in Toronto, RIOCF on the pink sheets in the US).

Riocan is certainly not a small company that will shoot to the moon as news of their Walmart relationship leaks out, it is the largest REIT in Canada and, while it is the landlord for about 25 Walmart stores and Walmart is their third largest tenant by revenue as of the last quarter, Walmart provides less than 5% of their revenues. They are extremely diversified across retail, they do lease to Safeway, Lowe’s, PetSmart and Giant, as teased above, but their top ten tenants list is weighted more to Canadian retail names that won’t be as familiar to US investors (Canadian Tire, Zellers, Loblaws, etc). They own a little bit of office real estate, but overwhelmingly this is a retail play, with a few enclosed malls and a lot of “new format” retail (which seems to be mostly big box centers and “town centers”) and supermarket-anchored (or Walmart anchored, I suppose) strip malls.

And while they are expanding in the US because that’s where they see some better-priced opportunities these days, mostly through joint ventures with a couple US REITs in the Northeast and in Texas, and they should soon have 5% of their revenue coming from the US (it’s 3% as of the last quarter), they are overwhelmingly a Canadian company. Ontario alone, thanks in part to the higher revenue from Toronto-area retail, makes up well over 50% of their annual rental revenue, with Quebec coming in a distant second.

I don’t know the company well and had never looked at them before today, but if you’re interested in Canadian retail this may well be an intriguing stock to research — their comparisons with bit US retail REITs look pretty good: leverage is relatively low, though that’s no longer as unusual after the cash-raising of the credit crisis; clients are extremely diversified with no one client accounting for more than 5% of revenue; they have the opportunity to cut financing costs on some of their mortgages and have recently raised both debt and equity financing at good terms; they’re profitable and growing funds from operations and have consistently high occupancy rates; and they pay a substantially higher yield than all the big US retail REITs I’ve checked.

With a monthly dividend currently at 11.5 cents, that gives an annual payout of C$1.38 and a current yield of over 6% from a C$22 share price. That’s not overwhelming, of course, but it is being covered reasonably well by funds from operations, they are making acquisitions, as teased that may give them some ability to raise the payout in the future (they haven’t raised it since 2008, but did raise it annually before then), and it’s certainly more than you’ll get from comparable (though the comparisons are arguable in each case) retail REITs in the US like Kimco (KIM — 4.2%), Realty Income (O — 5%), Macerich (MAC — 4.1%) or Simon Property Group (SPG — 3.1%).

I assume that US investors probably pay the same withholding tax as they would for non-real-estate trusts (last I saw from RioCan, for their 2008 info, this was still a 15% withholding tax — and it’s due even on IRA holdings). And if you’re worried about that “Halloween Surprise” change to the tax law a few years back which means that trusts lose their tax-free status in January, don’t worry — this is a REIT, which will still get the tax pass-through status that is, in effect, practically identical to the US tax treatment of US REITs.

So, if you’re asking your friendly neighborhood Gumshoe, I’d say that if you’re not already pretty close to being a millionaire I can’t imagine this stock getting you there within two years … and asking for a 400% return from a large, reasonably valued and moderately growing REIT seems a bit ambitious — oh, and Walmart is a nice and growing client, but “Wall Street” isn’t going to make these shares double just because someone soon realizes that RioCan owns 25 (or soon 30 or so, perhaps) Walmart store locations. I don’t know whether RioCan has any particular connection with Walmart’s recurring fascination with smaller store test projects, but I suppose it’s possible — and also probably pretty insignificant for the bottom line into the foreseeable future.

But that’s obviously hype to sell a newsletter, it doesn’t mean it can’t be an attractive income or dividend-compounding stock (as long as the Ontario economy doesn’t collapse). And if you’re a believer in the continuing power of the Canadian Dollar, it may well be that a steady income in that currency means even more to you than US dividend income. I don’t own the shares, but they do look more appealing to me than most of the US retailer REITs I’ve looked at in the last six months. If you’re interested in digging deeper, they have a good investor presentation here with their third quarter results [pdf file] and a solid overview of the business, or their full reports are available here.

So what do you think? Is RioCan the kind of dividend income you’re looking for? Prefer something else in the retail REIT space, or something else entirely to cover your monthly bills? Let us know with a comment below.

Full disclosure: I have owned several of the companies mentioned above in the past, but do not have a direct current interest in any stock mentioned. I will not trade in any stock mentioned above for at least three days per my rules.

Related Gumshoe Articles

Dittman’s “How to Bank Massive Gains from an $11 Afterthought Stock.”

What's the Secret "Market Titan" Being Pitched by Canadian Edge

9 Comments Read More

“40X Bigger Than the Bakken… And you don’t have to buy a single oil stock to make a fortune…”

13 Comments Read More

Share Your Thoughts

ShowHide Comments (40)
    1. stuart
      Dec 6 2010, 02:44:19 pm

      This security is part of the Canadian Edge portfolio, from Roger Conrad's rag….It has performed well over the last 2 years..

      • Frank
        May 15 2012, 04:43:52 pm

        Hi Stuart,
        I readed an article about the Wal-Lord on the internet and came on this site (stockgumshoe). I don’t know exactly about what REIT Conrad is talking about but I doubt between Collawaw and Riocan. In this forum two (or maybe more) people aks you for sending the ticker symbols of the Canadian Edge portfolio. Is it possible to get this up-to-date list from you? What is your opinion about these REITS? In my opinion, I think its going about Calloway (CWT). Thanks already for your reaction! (My emailadress is frankvvelsen@hotmail.nl)

        Best regards,
        Frank (The Netherlands)

    2. blackjack
      Dec 6 2010, 09:50:20 pm

      Australian Banks allow overseas investors to put funds in their banks that pay 7-8% PA
      from the interest payment you pay 10% witholding tax – all money up to 1 million dollars is guaranteed by the Government. PLUS the Australian dollar is approx parity with US$

      Also why not think about buying a condo in another country and getting rent on it. Thailand now is a great investment and you can pull % and no tax!

      Think outside the box

    3. Jack
      Dec 6 2010, 10:15:20 pm

      Walter Donovon and Steve. If you care to E-mail me privately, I have an article about a group of low beta high dividend stocks. The author suggests the sale of call options to increase the income. This could be just what you are looking for, it was designed for retirement income. I would be pleased to share it with you guys if you wish. Jack My E-mail is: nhhobbyfarmer@yahoo.com

    4. John Harvey
      Dec 7 2010, 02:31:09 am

      If you are interested in high yield dividend stocks, why not look at AGNC with a dividend of 20% and ARR with a dividend of 19% instead of buying a Canadian REIT and then have to pay 15% of your dividend in Canadian Capital Gains Tax ?

    5. MnKid
      Dec 7 2010, 09:55:52 am

      My questions is how can a company that has revenue of $3.47/ share pay out a $5.60 dividend? They have $32 Mil in bank and $4.19 Bil in debt! Can someone educate me on this?

    6. dreverts
      Dec 8 2010, 04:31:19 pm

      Buyer beware with AGNC, it is definitely not a safe yield play. they are under earning their dividend and have yet to be tested by interest rate volatility.

    7. Marcia Krook
      Dec 13 2010, 03:19:47 pm

      Not to my knowledge, nor is the return of capital…at least they weren't in my accounts. Check Conrad's Canadian Edge tax Info or the IRS

    8. Sami
      Jan 19 2011, 01:27:16 pm

      I think you are wrong. It is Retrocom. RMM.un
      Pays over 8%. About $6.

      Why do you give out incorrect information? I am not 100% sure but it would more likely be a small cap company. Up 6% today.

      Please do your homework more diligently before making it seem that you are 100% correct. I think you are wrong.

      • 56 |
        Dec 6 2011, 05:41:20 pm

        spelling correction : buying a “significant” number of shares………. as Rick Perry says:
        “oooops.” Luckily, I am not running for president, and this was simply a spelling error and not fading memory or alzheimers!

    9. 3984 |
      Travis Johnson, Stock Gumshoe
      Nov 18 2011, 02:08:56 pm

      FYI, this stock is again being teased by Roger Conrad, 11 months later. The pick is up a bit less than 10% and still pays the same dividend, so the effective yield is now in the 5.5% range. And though the new teaser says that they “tripled profts” for the third quarter, that’s only technically true — net profit did reportedly triple (from $56 million to $168 million), but the actual per-share Fund From Operations, which is what REIT investors typically use as their profitability measure, was up by a more reasonable 14% (net income, I presume, must have included growth from acquisitions that probably went along with stock dilution, though it could have been something else on the books, haven’t checked).

      Still not bad, but don’t think of this as a nosebleed growth company, it’s a shopping center and big box REIT. And Conrad, according to the latest teaser ad, apparently still has this down as his favorite.

    10. Bob W
      Nov 18 2011, 03:44:05 pm

      REI.UN also trades OTC in the US as RIOCF. Conrad doesn’t cover RMM.UN in Canadian Edge.
      Conrad rates REI.UN as a “6” for safety, his highest rating, which is of interest for conservative investors.
      I like AX.UN (OTC – ARESF) better, another REIT that Conrad covers. Apparently owns high quality commercial and industrial properties, mainly in Canada but some in the US. Currently trades about C13.64, monthly dividend of C0.09 for a 7.93% return, P/E 6.00, P/B 1.033. Conrad rates it “5” for safety and a buy up to US$15.

    11. 56 |
      Dec 6 2011, 05:37:43 pm

      Well Said, Travis,,,,,,,,,I have followed you for years, and your selection track record has been outstanding! A Plus for a grade. I am not sure what these readers are looking for, especially when the discussion here should focus more on the tease itself:
      A Walmart Millionaire? PLEASE,,,,,,,,,, Most folks posting on this tease are looking for income, not compounding wealth. How one is supposed to be a millionaire recipient even compounding their gains on the yield from RIOCF or other Canadian trusts is beyond the scope of reason, unless he/she buys signicant numbers of shares.
      Remember folks, try not to get too tricky with these teases. If it is a Canadian or foreign trust, you will be asked to report foreign income, and have to become your own tax accountant, unless you pay someone. There go the profits, millionaire. Having lived in Australia, you can certainly open a bank account down there. They welcome your money. Be prepared to leave the money there, while also being subject to taxes there and foreign income reporting in the USA. The interest rates have been substantially higher than in the US over the years, but that is subject to change – as are the exchange rates on money, which is the biggest issue in foreign investing. If you plan to physically invest outside of the USA, be sure to have a plan to go visit your money and spend it there!
      Travis, as we all think of investing and end of year strategies, I would like to see a forum here on “What should we do with our savings for 2012 and beyond?” Most folks have cash and are looking for a safe investment to park their money that is potentially liquid.

    12. Holistic Hypnosis & Hypnotherapy - Los Angeles
      Jan 2 2012, 03:17:35 am

      Hi. I used to give these newsletter writers a lot of authority. Because they speak with such bald faced confidence i assumed it must be mostly true. But observing their recomendations over a period of time revealed their feet of clay. Yours was one of the sites that helped cut them down to size a few years ago. Now I kind of ho hum their missives. “If it seems too good to be true it probably is.” as the old saying goes.
      Holistic Hypnosis Hypnotherapy Los Angeles

    13. jvsaputo7
      May 17 2012, 07:53:04 pm

      I am 63 and put about 74,000 in about 20 stocks, energy stocks, mining stocks and some good blue chip stocks. I already have an unrealized loss of over 4,000. Oil will probably come back by this fall but it takes your breath away. Is there a safe place to get a monthly high yield for income in your radar?

    14. David A
      Jan 5 2013, 07:53:52 pm

      Check out this REIT “GOV”. It is manages government related properties whereby the US
      government pays the rent. The biggest cilent is the IRS. Think about it, as messed up as
      our government is, the IRS is not going to stop doing business. It pays a 7% yield and a
      .42 cents a quarter Dividend. The thing I like the most is it more SAFE than many REITS. Talk about poetic justice. When the IRS is screwing all of us for TAX- we can
      collect a 7% yield off them! Try getting 7% out of $100,000 CD. It wont happen. Not today.
      Its insulting what a bank wants to offer for a $10,000 CD. Check out: GOV

    What These Icons Mean

    • The user who posted this comment is a Stock Gumshoe Premium Member (also known as an "IRREGULAR").
    • This user regularly writes articles for Stock Gumshoe. They may or may not be the author of the current article.
    • This user's comments have been "liked” by at least a few members of the Stock Gumshoe community.
    • This user has commented widely, with input that has been liked enough to earn a two-thumbs-up rating from other readers.
    • This is the highest rating a user can get. They are among the most respected commentors of our community.