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Build a High-Quality REIT Portfolio With These 4 REITs Today

One of the best things created after dividend stocks are real estate investment trusts (REITs). Anyone can now collect rent without the hassle of dealing with tenants.

Your investment in real estate can be immediately diversified by location and industry class. Additionally, you will have professional management teams to look after those properties and to grow the businesses. You can be a part-owner in REITs today. Which ones should you buy today?

Here are some high-quality REITs in different categories that are reasonably priced today.

Diversified REIT

If you must own one REIT, it would be Canadian REIT (TSX:REF.UN). It owns a diversified set of properties and receives roughly 50% of rental income from retail properties, 25% from industrial properties, and 25% from office properties.

Its cash flow is stable and reliable, as its high occupancy rate hasn’t gone below 95% since 1994. At the same time, it has reduced its payout ratio over the years from 94% to the conservative ratio of 59% today.

This prudent payout ratio ensures the company can continue to grow its distributions, just like it has for the past 13 years. I think it’s wise to accumulate units of Canadian REIT for the 4% yield.

Residential REIT

Boardwalk REIT (TSX:BEI.UN) specializes in buying and managing residential properties in four provinces. At a low payout ratio of 60%, Boardwalk is likely to continue to grow its distribution like it did in the past three years.

A plus for Boardwalk is that management equity ownership is roughly 25%, so management has the incentive to make the REIT a success.

The 3.5% yield is a good starting point to accumulate units of Boardwalk REIT.

Retail REIT

Wal-Mart is a high-quality superstore that can be found near you. Calloway Real Estate Investment Trust (TSX:CWT.UN) receives 27% of its rent from Wal-Mart. Calloway’s transaction to acquire $1.2 billion of shopping centres from SmartCentres is expected to close by the end of May. This transaction should set up Calloway for further growth. At the same time, the REIT will be rebranded to SmartREIT and trade under the symbol, SRU.UN.

Today, Calloway is fairly priced around $29 with a juicy yield of 5.4%. This yield is supported by a sustainable payout ratio of 80%, which is at the low end of its historical range.

Office REIT

Dream Global REIT (TSX:DRG.UN) is a rare opportunity for Canadians to invest in foreign real estate. Specifically, Dream Global is focused on buying commercial properties in seven major German cities: Hamburg, Munich, Frankfurt, Stuttgart, Dusseldorf, Berlin, and Cologne.

Its yield of 8.1% provides an attractive income, although it has a high payout ratio of 92% compared with peer Allied Properties Real Estate Investment’s payout ratio of 67%.

Watch for the interest rate hikes

Buying the same dollar amounts in these four REITs today gives an average yield of 5.2%. I think that’s attractive when compared with the low interest rate. But, of course, there’s volatility risk in investing in REITs or any other stocks.

We know the risk are coming; we just don’t know when. As interest rates rise (or even the anticipation of this event), REITs will experience pullbacks. Take these dips as opportunities to accumulate units in these high-quality REITs.

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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 Kay Ng owns unites of Canadian REIT, Boardwalk REIT, and Dream Global REIT.

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