Want Stable Income? Go With RioCan Real Estate Investment Trust

Investors should take advantage of one of the top REITs in Canada, RioCan Real Estate Investment Trust (TSX:REI.UN), for its dividend.

| More on:
The Motley Fool

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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

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

More on Dividend Stocks

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »