Income Investors: Should You Buy RioCan Real Estate Investment Trust or Inter Pipeline Ltd.?

Income investors are searching for steady monthly payouts that offer decent yield without carrying too much risk.

Let’s take a look at RioCan Real Estate Investment Trust (TSX:REI.UN) and Inter Pipeline Ltd. (TSX:IPL) to see if one is a better pick today.


RioCan owns more than 300 shopping centres in Canada.

Some pundits are concerned the internet is going to kill brick-and-mortar retailing and that shopping malls are destined to go the rout of the dinosaur.

Retail is certainly changing and some sectors are feeling the pinch, but RioCan and its tenants are likely to be in business for a long time.


Most of RioCan’s anchor tenants are big-name businesses selling products that most people still prefer to buy in person. You know the ones I’m talking about. They are the grocery stores, discount retailers, and businesses selling everyday household goods.

Online grocery shopping is not likely to take off in Canada due to the spread-out nature of the country’s towns and cities, and most people who need a new garden hose or snow shovel are just going to drive to the store and buy it.

Demand for RioCan’s locations remains strong. The company renewed one million square feet of space in Q1 2016 at an average rent increase of 6.2%. RioCan is also bringing in more cash as funds from operations in the quarter jumped 7% compared with the same period last year.

Management recently sold off the company’s 49 U.S. properties for a healthy profit. The funds will be used to reduce debt and invest in new opportunities.

One development to keep an eye on is RioCan’s plan to build condo units at some of its top urban sites. If the concept takes off, investors could see a nice surge in revenue in the coming years.

RioCan currently pays a monthly distribution of 11.75 cents per unit. That’s good for a yield of 5%.

Inter Pipeline

Inter Pipeline operates pipeline infrastructure in western Canada and a liquids storage business in Europe.

The oil rout has been difficult for producers, but Inter Pipeline continues to deliver strong results.

Last year the company completed two oil sands pipeline projects and a conventional oil pipeline in Saskatchewan. Those assets have increased throughput on the company’s network and helped drive net income up 33% in 2015.

Oil sands companies are cutting back on expansion plans, but they continue to produce at a healthy clip, and Inter Pipeline’s conventional oil infrastructure is heavily focused on the Viking play in Saskatchewan, which is holding up well.

The European business is enjoying utilization rates of 98%, and Inter Pipeline is increasing storage capacity in the division through organic developments and acquisitions.

Management raised the monthly dividend last November to 13 cents per share. As new assets go into service later this year, and in 2017 investors could see another dividend hike. At the moment, the distribution provides a yield of 5.8%.

Which should you buy?

Both companies are solid picks. If you only have the cash to buy one, I would go with Inter Pipeline today for the higher yield and potential upside opportunity as the energy sector recovers.

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Fool contributor Andrew Walker has no position in any stocks mentioned.

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