Why Cominar Real Estate Investment Trust Should Be a Top Choice for Income Investors

Income investors are often left with a choice: Should they go with larger dividends that are somewhat risky, or go with smaller, growing dividends that generally have more room for error?

For many investors, the choice is easy. Going with the dividend growth approach is a good long-term decision, especially for investors who are reinvesting their distributions into new shares. If a dividend growth name is left to compound over decades, the income becomes all the more exciting once a younger investor hits retirement age.

But what about an investor who’s looking to maximize income now? Sure, they can chase yield, plunking down money on some of the stocks on the TSX that yield close to double-digits, but that’s a sucker’s game. Just one dividend cut can slam shares, killing both the income and a big chunk of the original investment.

There aren’t many of them — especially after this five-year bull market — but there are a few companies that can give investors the income they crave with the stability of knowing it’s dependable. Cominar Real Estate Investment Trust (TSX: CUF.UN) is one of those companies. Here are three reasons why it should be in your portfolio.

1. Great results

The company just released quarterly results that were rock-solid. Funds from operations grew by more than 10%, and net income growth eclipsed 7%. Occupancy rates approached 94%, and the company spent more than $100 million expanding its empire of property in the Greater Toronto Area, part of the company’s strategy to diversify beyond Quebec and Atlantic Canada.

What’s not to like about those results? A 10% increase in funds from operations is a huge increase for a REIT.

2. A rising dividend

Cominar threw investors a bone with its latest results, increasing its monthly dividend 2% from $0.12 per share to $0.1225. It’s not much, but it still beats most REITs, which aren’t growing distributions at all.

Currently, the company’s shares yield a very attractive 7.65%. As well, the company’s payout ratio is great, coming in under its stated goal of being 90% or better.

Investors looking to increase their yield can participate in the company’s dividend reinvestment plan, or DRIP. If investors choose to get their dividends in the form of more Cominar shares, the company will give them $1.05 worth of shares for every $1 worth of dividends. The DRIP raises the yield to over 8%, which is practically unheard of, especially with such an attractive payout ratio.

3. Shares are cheap

As Warren Buffett has famously said, “I’d be a bum on the street with a tin cup if the market was always efficient.” In my opinion, there’s some inefficiency going on with Cominar’s shares, and investors would be wise to look at the company while the market seems to hate it.

Shares fell with the rest of the REIT market back in the summer of 2013, but didn’t really recover. Investors who buy in now are getting a REIT that trades at a discount to its peers from a price-to-cash-flow and price-to-book perspective. The company does have a little more debt than its peers, but is in a position to pay it off with its strong cash flow.

If you’re looking for income, Cominar is a solid choice. Plus, its shares are beaten up, so investors are even getting some potential capital gains from the name. It’s not unreasonable to expect the company to outperform its peers going forward.

One more great choice for income investors!

Constructing a portfolio is like building a house, chief analyst Iain Butler says. You want to build it on a foundation of "rock solid, proven, long-term money makers." And do we have a winner for you... click here now for our FREE report and discover 1 top Canadian stock for 2014 and beyond!

Fool contributor Nelson Smith has no position in any stocks mentioned.

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.