Should Investors Consider Buying RioCan Real Estate Investment Trust?

Because of its high-quality assets, smart diversification strategies, and lucrative dividend, I believe investors should buy RioCan Real Estate Investment Trust (TSX:REI.UN).

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Every entrepreneur has goals. They may be broken up into one-year, five-year, and 10-year goals, but they are goals nonetheless. One of my goals is to own real estate assets because I believe the income potential is incredibly lucrative. There are two ways that I can do this. The first is to acquire physical real estate. For example, I could buy a small shopping centre that has a dozen tenants and generate income from their rents.

The problem with that is the asset is highly illiquid beyond the rent. If something bad happens and I need the money, it’ll take me a long time to sell the asset. Typically, people sell when times are bad, so I would likely lose a lot of money on the sale of that shopping centre. This brings me to the second way that I could own real estate assets: buying real estate investment trusts (REITs).

A REIT is a special type of equity that passes on the majority of its income to investors in exchange for not paying much in taxes. Therefore, I earn income from the rent that the REIT collects. What makes a REIT special is that if I need to sell, it’s as easy as making a trade on a brokerage account. REITs are stocks and trade as such.

One of the best REITs in Canada is RioCan Real Estate Investment Trust (TSX:REI.UN). RioCan runs some of the largest, most widely sought after shopping centres in the country. In Canada, it has 340 locations that account for 80 million square feet. And in the United States, it has 48 different locations that account for 13 million square feet. And because these assets are such high quality, occupancy for RioCan is 97%, which makes sense considering it has Canadian TireCineplex, and Walmart as tenants.

Further, the company is diversifying. It is launching a new joint venture with Hudson’s Bay Co., which will take the capital and management experience from RioCan and the properties from Hudson’s Bay and create a new entity. This will go public at some point in the future, with RioCan holding a significant portion of the company.

Finally, there are reports that RioCan may sell its 48 United States-based locations. The primary reason is that it bought them during the Financial Crisis of 2008. Because of how strong the U.S. dollar is presently, RioCan would be able to generate a significant return on investment for shareholders.

All of this supports a highly lucrative yield of 5.50%, which comes out to $0.12 per month. If my goal is to own real estate, I want to be paid rent monthly. By owning RioCan, I will receive $0.12 for every share of the company that I own every single month. That gives me the ability to redeploy that money into further assets, ensuring my goals can be achieved.

Based on the price today, I think RioCan is an absolute steal. Investors are worried that with interest rates potentially going up, the stock could suffer. I believe that is already baked into the price and, the reality is, interest rates will take a long time to go up significantly. Buying stock when other investors are fearful is indeed a good way to generate profits.

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.

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