If there’s one type of company that dividend-hungry investors should be looking for, it’s real estate investment trusts (REITs). These are special companies that derive their revenue from real estate. What makes them even more special is that they pass the majority of the profits on to investors. This means that these types of investments are great for the long term.
There are plenty of different REITs out there, but there are four that I think are good buys. The first two are conservative bets, but pay nice yields. The other two are riskier investments, but I believe they could generate significant returns for investors. They are RioCan Real Estate Investment Trust (TSX: REI.UN), Dream Office Real Estate Investment Trust (TSX: D.UN), Chartwell Retirement Residences (TSX: CSH.UN), and InnVest Real Estate Investment Trust (TSX:INN.UN).
RioCan
We’ll start with the strongest REIT on the list. RioCan runs a giant network of shopping centres across the United States and Canada. All told, the company runs 340 shopping centres with nearly 80 million square feet of leasable property. It is so diversified that no single tenant accounts for 5% of its space.
This is ideal because it ensures that the company is secure. Even if one company were to go out of business, it wouldn’t have a significant impact on the $1.41 in dividends it pays every year. The 5.86% yield is lucrative, and since it is only a payout ratio of 85%, it’s completely secure.
One thing that makes me even more excited about RioCan is that it may sell its U.S. operations. It bought them right after the financial crisis, so if it sells, that’s a huge coup for the company.
Dream Office
This is a company that investors have been beating up because there is fear about oil prices. Dream office runs a large network of office buildings. What has investors concerned is that 4.9 million square feet of its more than 24 million available square feet are in Calgary, a heavy oil region.
However, because the markets are concerned, the price of this stock has dropped so much that the yield is now 10.82%, or $0.19 per month. The question is whether or not this dividend is safe. I think right now the company is in an okay position, but if oil prices were to stay low for years, the company could suffer. However, you’re buying the stock at such a discount that even if the dividend gets cut, you may wind up coming out on top.
Chartwell
I like Chartwell because it is an acquisition target, and no one is really talking about that yet. Chartwell is in the senior housing residences business. With an aging population in North America, this means that Chartwell will have more customers over the coming years, not fewer. That puts it in a position to dominate.
However, here’s the reason it could be an acquisition target: there has been a slew of senior-related REIT acquisitions over the past couple years. What bigger REITs like is that it is expected and growing revenue. For example, on September 15, Trilogy Health Services LLC was bought for US$1.2 billion. I don’t expect this trend to stop, so Chartwell could one day be receiving offers to be acquired.
InnVest
This company is really interesting and you have to be a little creative to see why there might be a hidden gem here. InnVest runs a network of hotels across Canada. On the surface that sounds concerning. If the economy in regions of Canada are weakening, wouldn’t that mean that fewer people are staying in hotels?
Consider the fact that Canada shares a ridiculously long border with the United States. The U.S. dollar is incredibly strong in comparison to Canada’s, so people are crossing the border into Canada because they have more buying power. What do you do if you want to stay in a country for longer than one day? You stay in a hotel.
I believe that as long as the Canadian dollar stays weak, we’re going to see an influx of people from south of the border because they get more bang for their buck. InnVest could see a few years of growth due to this phenomenon. Right now the company pays a yield of 7.91%.
Dividends rule
At the end of the day, dividends are the premier way to grow your portfolio. In my opinion, if you’re buying stocks that pay lucrative dividends, your portfolio will be much stronger in 10-20 years than if you buy non-paying stocks.
