Canadian investors wishing to gain exposure to the real estate sector can purchase real estate investment trusts (REITs) at TSX. Even if you don’t actually own any investment property, there will be cash flow for income stability. Most REITs can afford to pay above average dividends because of the tax breaks offered to large real estate owners.
The real estate market today is hot, although it is not conducive to buying for investors due to inflated prices. Some industry watchers are predicting the bubble will burst soon. Cliff Stevenson, president of the Canadian Real Estate Association (CREA), recognizes that a housing crisis exists and will not go away on its own.
Two leading REITs, True North Commercial (TSX: TNT.UN) and TIME (TSX: HR.UN), are great choices if you want to add the real estate asset class to your portfolio basket. Dividends are generous and should be sustainable, given the strength of their property rental business and tenant base.
Cash flow security
Income investors prefer True North over other REITs because of its high yield and tenant profile. At just $ 7.37 per share at the time of writing, you can participate in the ultra-high 8.28% dividend. Since the payments are monthly, a position of $ 50,000 will produce $ 345 of passive income each month. You can keep reinvesting dividends for a faster turnover of your money.
True North has a premier tenant base that includes the Federal Government of Canada and three provincial governments. As a shareholder of this $ 645.86 million REIT, you would be a pseudo-landlord earning rental income from government tenants and credit-rated business entities. This group contributes 76% of total turnover.
The portfolio of 45 commercial buildings benefits from a high occupancy rate of 97%, with an average lease term of 4.7 years. True North mainly focuses on urban areas. Management’s investment criteria are straightforward. Focus on urban areas for real estate acquisitions. Be selective and choose only quality tenants. The result should be stable contractual cash flows.
Diversified asset class
H&R is a fully internalized REIT and one of the largest in Canada. The $ 4.78 billion REIT leases 457 properties comprised of four classes of real estate assets. Its office (38%), retail (31%), residential (23%) and industrial (8%) buildings are located in Canada and the United States.
In 2020, H&R experienced a significant drop in the number of occupations due to the fallout from the pandemic. Its total loss in the first half of last year was just over $ 1 billion. However, activity improved, as evidenced by net income of $ 254.3 million in the six-month period ended June 30, 2020. Properties operating income also increased 1.7% on a year-over-year basis. annual.
According to H&R President and CEO Tom Hofstedter, the REIT’s rebound in 2021 reflects the quality of the portfolio and the strength of the balance sheet. As of June 30, 2021, the average leases of the office, retail and industrial portfolio were 12, 6.7 and 6.5 years respectively. There are 24 residential properties in some US markets. The stock price and dividend yield is $ 16.29, and 4.32% if you invest today.
Along with the competitive investment returns from True North Commercial, H&R and other established Canadian REITs, you would have a suitable diversification portfolio. Some market analysts even compare the asset class to low risk bonds. There is income stability without risk of vacancy and the responsibilities of a real owner.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We are straight! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer, so we post sometimes articles that may not conform to recommendations, rankings or other content. .
Foolish contributor Christophe Liew has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.