Ever since I was a teenager, the thought of owning real estate has crossed my mind. The thought of buying up properties, fixing them up, and renting them out appealed to me. Even at that young age, I understood the concept of cash flow.
Unfortunately, it can take a lot of money to get into the business of owning buildings. Furthermore, once I own that building, it’s unlikely that I’d be able to get the money out in case of an emergency. That means I can’t get into the real estate business, right?
Wrong. I can buy exposure to companies that buy real estate through real estate investment trusts (REITs). These are specialized companies that are mandated by law to send back a significant amount of profits to its investors in the form of dividends. These trusts buy real estate, collect the rents, act as landlords, and pay their investors a dividend at the end of every month. Suddenly, I can be a real estate investor without needing to actually own and manage my own buildings.
If this appeals to you, then you should look at RioCan Real Estate Investment Trust (TSX:REI.UN). Some have called this a forever stock. And if you ask me, I am inclined to agree. It is, by far, my preferred REIT that Canadians have access to.
The primary reason is because of the quality of its properties. Across Canada, it owns 79 million square feet in 340 different locations. And in the United States, it owns 13 million square feet across 48 different locations. These are large shopping centres, which have dozens of different companies paying them rent every single month. Because of their size, we can also conclude that the type of renter is probably a large retail store, which gives them a level of safety.
Under normal circumstances, a company like RioCan would have a hard time growing beyond this. There is need for only so many shopping centres. But RioCan is developing a strategy where it will expand into the residential marketplace by using land it already owns to build up. They will be building condos on top of their retail operations, which is cheaper than having to buy new land and grow from there. And it’s a win-win-win scenario: the condo owners live near the shops they need, the shops have more people living nearby, and RioCan profits.
All of this leads me to the dividend, which is secure and highly lucrative. Since going public in 1994, the company has paid a quarterly dividend on time, every time. In other words, it has made hundreds of payments to its investors. Based on the current price, the yield is 5.11%, which is quite nice, if you ask me. This factors out to $1.41 per year paid out quarterly. And because the payout ratio is 85%, it means that the dividend is stable, though it may not have much room to grow.
Time to buy?
RioCan’s price has been dropping the past month. It has gone from over $30/share to around $27.50. This depreciation is what took the dividend from closer to 4.85% up to 5.11%.
When I am looking to buy a dividend stock, I look to get in at a point where each one of my dollars results in the highest possible dividend. And because RioCan is such a wonderful company, I would feel perfectly comfortable buying at this level and then averaging down as the price goes even lower. Whatever you decide, this company is going to continue paying you a really lucrative dividend time and time again.
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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 Jacob Donnelly has no position in any stocks mentioned.