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RioCan Real Estate Investment Trust: My Favourite REIT for Monthly Income

This might be one of the best income securities I have ever seen.

The firm owns many of the top real estate properties in Canada, which are rented out to some of the most credit-worthy tenants in North America. I can only think of one, maybe two, other companies in the world with a portfolio of assets like this.

This has created a reliable monthly income stream for unitholders. Since going public in 1994, this fund has paid out a remarkable 222 consecutive distributions to investors. Today, the trust yields a tidy 5.3% and that payout could grow substantially in the years ahead.

Let me explain…

For income investors, monthly dividend payments are a godsend. We depend on regular distributions to pay the bills. Waiting three months for our next payment isn’t always practical.

Thankfully, there’s a small universe of about 100 stocks in the country that spit out dividends every month rather than the more traditional quarterly schedule. Widely held names are rare in this group. However, there’s enough quality and variety to build a reliable stream of monthly dividend income.

Many of these firms are ex-income trusts that have been converted into dividend-paying corporations. Thankfully, many have maintained their tradition of paying dividends monthly to help their investors better match income and living expenses.

Of course, wading through hundreds of securities is a challenge for most investors. That’s why I wanted to share my favourite monthly dividend payer in Canada: RioCan Real Estate Investment Trust (TSX: REI.UN), the country’s largest property owner with over 79 million square feet of real estate throughout Canada and the United States.

However, the firm isn’t your traditional landlord. In fact, RioCan deals very little in residential housing at all. Rather, this firm specializes in commercial and retail tenants.

I’m talking about major corporations like Wal-Mart Stores, Inc.Canadian Tire Corporation Limited, and Shoppers Drug Mart Corporation. These firms are rock-solid from a financial perspective and aren’t going out of business any time soon. Needless to say, these types of tenants are on strong financial footing.

RioCan passes on most of its rental income to its investors. Since the trust started making payments in 1994, RioCan has never missed a distribution. Remember, that time period includes three major recessions.

Today, the trust pays investors a monthly 11.75¢ distribution per unit. That comes out to an annual yield of 5.3%, one of the higher income payers on the Toronto Stock Exchange.

And that payout is likely to increase in the months ahead. Management’s focus on developing new properties rather than acquisitions should translate into strong free cash flow growth. Given that many of the company’s leases are signed at below market rates, renewals should also provide a big profit bump in upcoming quarters.

Best of all, there hasn’t been a better time to add this trust to your portfolio. With the recent market swoon, investors have lumped in RioCan units along with every other mediocre company. However, as others start to wrap their heads around the fund’s story, I’d expect this trust will once again fetch a premium.

Here's one MORE top dividend name...

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Fool contributor Robert Baillieul has no position in any stocks mentioned.

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