Real estate is often considered one of the best investments, and if we were to look at the richest people in the world, many of them would have accrued that wealth with real estate. But the unfortunate reality is that it can be very hard for small time investors like you and me to actively manage properties. That’s where real estate investment trusts (REITs) come into play.
These are companies whose sole purpose is to invest in real estate and because of their tax status, they give a significant amount of their cash flow to their investors in dividends. When you buy a REIT, you are getting an easily traded security — stock — and you don’t have to worry about managing a property. Further, if you decide you ever need to get out, that easily traded asset is much easier to liquidate than a physical piece of property.
The REIT that I recommend in Canada is RioCan Real Estate Investment Trust (TSX:REI.UN). It is the largest REIT in Canada and is considered the best across the entire country.
One of the primary reasons it is the best is because of its dividend. At 4.76%, it is definitely going to provide some sustainable income. Every month, investors receive $0.12 per share, which comes out to $1.44 a year.
Now the reality is, this isn’t the best dividend around. But what I like about this dividend is that it is reliable. The reason I keep a full-time job is because I know that every two weeks, I am going to get a check. I have bills to pay and that reliability is necessary. RioCan is just as reliable as my bi-weekly paycheck.
Since going public in 1994, the company has never missed a monthly dividend. If you do the math, that’s over 250 dividend payments. I respect a company that doesn’t miss a payment. That means if you had invested in RioCan in 1994, you would have been paid as consistently as any job for over 20 years. That’s a comfortable feeling.
RioCan can do this for two reasons. The first is that the company has a ton of really amazing assets in its portfolio. All told, it covers more than 79 million square feet across 340 locations in Canada. And while it’s a smaller footprint, it has 48 locations of a total 13 million square feet in the United States.
But like any good portfolio, RioCan is diversified. Its largest tenant accounts for only 4% of gross rents. Even if that tenant were to go out of business, RioCan wouldn’t be too hurt, ensuring that the dividend continues.
The other reason RioCan is able to continue paying a great dividend is because it is growing. Now that it has these large shopping centers, its looking to go vertical rather than horizontal. The company is building condos on top of its retail shops. Rather than having to break ground on a new property, it just needs to add more height, which is much easier. Should this experiment work, expect this to be rolled out to the rest of the portfolio.
At the end of the day, RioCan is an income generating behemoth. It is consistent with its dividends and it is making moves that should help the company give you a pay raise over the next few years.
