If you’re looking for investments to boost your monthly income, check out these real estate investment trusts (REITs) that pay out monthly distributions. They pay safe yields of 8-10%.
When investing in high yielders, you are likely foregoing growth in return for higher income. One strategy is to use the income from high yielders to invest in low-yielding, high-growth companies.
In no particular order, here are some of the safest, highest-yielding companies in the public real estate world.
Dream Office REIT (TSX:D.UN) costs $23.40 per share and pays a 9.6% yield. It is one of Canada’s largest pure-play office REITs. Its tenants include municipal, provincial, and federal governments as well as Canada’s major banks, and small- to medium-sized businesses across Canada. With over 2,200 tenants, Dream Office’s risk of exposure to any single large lease or tenant is mitigated.
Even when its price dropped from a high of $30 to a low of $12 in 2008-09, Dream Office maintained its distribution. So, it’s likely the REIT will continue paying that yield, but don’t count on it being raised.
Dream Global REIT (TSX:DRG.UN) costs $9.70 per share and pays a 8.2% yield. The REIT owns and operates roughly 13.9 million square feet of office and mixed-use space in Germany. Germany is the Eurozone’s largest economy and is among those with the lowest unemployment rates. As a result, the real estate market there is one of the most stable in the Eurozone.
Over the past three years Dream Global has been one of the top three acquirers of German office properties. The REIT now has office properties in seven of Germany’s major office markets: Hamburg, Berlin, Munich, Stuttgart, Frankfurt, Cologne, and Dusseldorf.
Since its initial public offering in 2011, it has not cut its distribution. With a payout ratio of about 86%, its distribution looks safe, but the REIT hasn’t shown eagerness to raise it.
Artis Real Estate Investment Trust (TSX:AX.UN) costs $13.20 per share and yields 8.2%. It is a diversified REIT that owns office, retail, and industrial properties in Canada and the United States. Since 2006, it hasn’t cut its distribution and increased it once in 2008. So, it’s likely the REIT will maintain its current yield.
Northwest Healthcare Properties REIT (TSX:NWH.UN) costs $7.90 per share and yields 10.1%. In July 2015 it completed the merger with its international counterpart. The combined result is a portfolio of 122 income-producing properties and 7.8 million square feet of gross leasable area that’s located across major markets in Canada, Brazil, Germany, Australia, and New Zealand.
Its portfolio consists of medical office buildings, clinics, and hospitals that are characterized by long-term, inflation-indexed leases and stable occupancies. At the end of July 2015 Northwest Healthcare has implemented a normal course-issuer bid program to purchase up to 10% of its public float, indicating the REIT’s shares are undervalued.
Tax on the income
REITs pay out distributions that are unlike dividends. Distributions can consist of other income, capital gains, foreign non-business income, and return of capital. Other income and foreign non-business income is taxed at your marginal tax rate, while capital gains are taxed at half your marginal tax rate.
So, to avoid any headaches when reporting taxes, buy and hold REIT units in a TFSA or an RRSP. However, the return of capital portion of the distribution is tax deferred. So, it may be worth the hassle to buy REITs with a high return of capital in a non-registered account.
Of course, each investor will need to look at their own situation. For instance, if you have room in your TFSA, it doesn’t make sense to hold investments in a non-registered account to be exposed to taxation.
Buying the highest yields for your entire portfolio is not the safest way to invest, but these high yielders could make up a small percentage of your portfolio to boost your overall income. Currently, I believe Northwest Healthcare and Dream Global offer the best value.
Fool contributor Kay Ng owns shares of DUNDEE REAL ESTATE INVESTMENT TRUST, Dream Global REIT, and NORTHWEST HEALTHCARE PPTYS REIT UNITS.