If you want to make money from real estate, but know that you can’t afford to start acquiring properties, then REITs are where you want to put your money. To qualify as a REIT, the company must distribute a significant amount of their net taxable income to its shareholders.
RioCan Real Estate Investment Trust (TSX:REI.UN) is one of the best REITs in all of Canada. The fundamental reason for this is because it is tremendously diversified, which allows it to stomach many problems that might come its way. Across Canada and the United States, it has 320 shopping centres, and these are behemoth shopping centres with large anchors.
The development plans for the company are very aggressive, which is smart in these low-interest-rate times. It has plenty of urban/mixed-use properties that will enable it to offer retail space, office space, and residential space all in the same building. This minimizes costs and maximizes the potential returns for the company.
And then there’s that dividend. It pays just over 5%. And because it is a REIT, every month you’re going to get $0.12 per share that you own. With a $10,000 investment, you would be getting a check for $43 a month. It’s not a lot of money, but reinvested, it’ll grow over time.
Because of this, the company is really well off and should continue to produce solid results for investors. Yet, there is some concern from some analysts that the valuation of the company is too high. When judging a REIT, it’s important to look at its funds from operations (FFO) because this gives a better idea of cash flow for the business. Based on RioCan’s FFO, the company is actually trading at a 17 times premium, which has many concerned.
I’m not too concerned, though. RioCan intends to deliver a 5% increase in FFO this year, which is good.
If you are someone that likes to try and play the price and find the perfect point of entry, I would wait until it reaches its middle-December levels. It was trading at $25.72 a share and that was a really attractive point of entry. But if you’re looking to find a company that has paid tremendous dividends historically, is continuing to grow, and is probably the best REIT in Canada, it’d be smart to start buying shares.
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.