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Want Stable Income? Go With RioCan Real Estate Investment Trust

It’s been a pretty good year for investors of RioCan Real Estate Investment Trust  (TSX:REI.UN) as the stock has increased about 21% since January. For those who look for price appreciation, that’s a solid return. However, what makes me a fan of RioCan is its dividend because it gives me what I believe to be the safest exposure to a real estate portfolio that I don’t have to manage.

REITs are special because you can invest in companies whose sole purpose is to invest in real estate. The difference is that these companies manage the properties; you don’t have to do anything except collect your quarterly–or, in the case of RioCan, monthly–dividend. You get the good without all the bad.

RioCan specializes in retail properties. But we’re not talking about small, strip mall–like locations. Instead, we’re talking about giant operations that have really powerful anchor tenants, and this allows RioCan to charge great rents.

All in, RioCan owns 293 retail operations with 37 million square feet. Some of its anchor tenants are Canadian TireWal-Mart, and Cineplex. So long as these businesses exist and there are people nearby, I don’t anticipate these tenants leaving. This stability is part of the reason why I like the stock so much. There may be better-paying stocks and more exciting stocks, but when it comes to earning a monthly dividend, I want stability.

Along with its already large portfolio, RioCan is developing an additional 5.5 million square feet of retail space and two million square feet of office space, both of which I expect to have a positive impact on the company’s earnings.

RioCan officially announced that its U.S. holdings, which it bought for very cheap during the economic crisis, has finally been sold to the Blackstone Group for US $1.9 billion. In a press release, Edward Sonshine, CEO of RioCan said, “With the sale completed we can now completely focus on our Canadian operations, development and redevelopment portfolio and begin to put the net sale proceeds to use to create one of the strongest balance sheet profiles for REITs in Canada.”

Part of the way it’ll make its balance sheet stronger is by paying down some of its long-term debt. It has over $6 billion, which is significant for a company with a market cap of $9 billion. By taking some of these proceeds and paying back lenders, it can redistribute its debt payments to dividends or further investment into its portfolio.

Further, Kimco Realty Group had owned a stake in over 20 of RioCan’s properties. RioCan has already agreed to buy out that interest, which will increase the funds from operation for the company.

I don’t expect that the dividend is going to increase based entirely on this sale, but it’s certainly possible. However, at present-day values, RioCan pays a solid 5% yield, which comes out to a monthly distribution of $0.12. Essentially, if you were to buy 1,000 shares of RioCan, it would be like investing $28,000 in a property and collecting a $120 per month rent cheque. It may not seem like a lot, but if you take that rent money and reinvest in more RioCan shares, you’ll see that money quickly grow.

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Fool contributor Jacob Donnelly has no position in any stocks mentioned.

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