Attention Income Investors: These 3 Top REITs Yield up to 9.2%

REITs such as Slate Office REIT (TSX:SOT.UN), American Hotel Income Properties REIT LP (TSX:HOT.UN), and Automotive Properties Real Est Invt TR (TSX:APR.UN) offer great yields at discount prices.

Just about every income investor would like a raise. Who doesn’t like more money?

There’s just one problem: if you don’t choose a company with a sustainable yield, chasing dividends is a sucker’s game. Getting paid 9% annually is great. When the company can’t support the yield and it gets slashed to a 6% payout — taking the share price down with it — it’s not good.

Many investors have put significant assets to work inside Canada’s real estate investment trust (REIT) sector, anxious to collect the attractive yields offered. Most of Canada’s largest REITs offer payouts in the 5-6% range. But there are a select few REITs that offer payouts of 7%, 8%, or even above 9%, while still maintaining a reasonable payout ratio.

Here are three of Canada’s top-yielding REITs, each with a sustainable payout.

Slate Office REIT

Slate Office REIT (TSX:SOT.UN) has caught the eye of many investors because of its succulent yield. Shares currently pay 6.25 cents per month — good enough for a 9.2% yield. You won’t find many better yields than that today.

Slate Office intentionally looks at the office market a little different than most other REITs. It focuses on so-called B markets, choosing to put its capital to work in places like Moncton and Markham rather than Toronto or Montreal. This allows it to buy assets at less than replacement costs and get cap rates of 7% or 8%, which is very attractive in today’s market.

Slate’s portfolio got a big boost in 2015 when it spent $430 million to buy Fortis’s Atlantic Canada-based office properties. These days, the company owns five million square feet of space spread out over 35 different properties.

In 2016, the company delivered $0.86 per unit in adjusted funds from operations (AFFO). Not only does that give the company an extremely low price-to-AFFO ratio, but it also ensures Slate can easily afford the 9.2% yield. The current payout ratio is 87%, which is reasonable for a REIT.

American Hotel Income

American Hotel Income Properties REIT LP (TSX:HOT.UN) is primarily a niche player. It owns hotels near rail facilities, which ensures a steady stream of tired rail workers. It has also expanded in recent years by picking up hotels near other transportation hubs, like airports. In total, the company owns nearly 9,400 rooms spread out over 95 different properties.

The hotel business is incredibly fragmented with thousands of operators in the United States owning just a location or two. The growth strategy of acquiring these properties has certainly worked so far; in 2013, revenue was just over US$48 million. In 2016, the top line was US$173 million.

Shares currently pay investors a 5.4 cent monthly dividend — good enough for an 8.1% yield. In 2016, the company generated $0.80 in AFFO, giving the stock a payout ratio of just over 80%.

Automotive Properties

Automotive Properties Real Est Inv Tr (TSX:APR.UN) is an interesting way to play a rapidly consolidating auto dealership market.

The REIT is backed by the Dilawri Group, which is Canada’s largest owner of auto dealerships. The company buys a dealer and then the REIT acquires the real estate. It then rents the property back to Dilawri at a competitive rate under a long-term lease. The operator then takes care of all operating expenses.

It’s a win-win scenario for both Dilawri and investors.

The current portfolio is 33 properties with a focus on major centres such as Vancouver, Toronto, and Calgary. It continues to grow rapidly; the company has announced a number of new acquisitions thus far in 2017.

The distribution is currently 6.7 cents per share each month — good enough for a 7.2% yield. The company has an AFFO payout ratio of 87%.

The bottom line

Smaller REITs like Slate Office, American Hotel Properties, and Automotive Properties don’t get as much attention as some of the larger choices, which is a shame. They offer better yields than the titans of the sector, often with comparable payout ratios. Income investors, take notice.

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 Nelson Smith owns Automotive Properties REIT shares. 

More on Dividend Stocks

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 »

Payday ringed on a calendar
Dividend Stocks

3 Dividend Stocks That Pay Me More Than $54.57 Per Month

These three dividend stocks have done me well over the years, so let's look at how much I've gotten in…

Read more »