The deadline to contribute to your registered retirement savings plans (RRSPs) is fast approaching. If you haven’t contributed yet, you still have time until the deadline of March 1.
Your contributions will have two benefits. They reduce your income taxes for 2016 and allow your RRSP investments to grow in a tax-deferred environment.
The higher your tax bracket, the more income taxes you’ll save. Since your RRSPs will probably be a big part of your retirement fund from which you’ll draw income, you can build an income portfolio for your future convenience.
You can generate meaningful income from American Hotel Income Properties REIT LP (TSX:HOT.UN) and Brookfield Property Partners LP (TSX:BPY.UN)(NYSE:BPY) in your RRSPs.
A portion of their distributions is sourced from the United States. So, if you hold their units in other accounts, such as your non-registered accounts or tax-free savings accounts, you’ll get a 15% withholding tax on that part of the distribution. However, you can be worry-free by holding their units in RRSPs.
Both companies offer U.S. dollar-denominated distributions, which boost their current yields because of a strong U.S. dollar against the Canadian dollar.
American Hotel yields 7.9%
American Hotel is a limited partnership, which invests in hotel real estate properties in the United States.
It primarily serves the rail-crew accommodation, transportation-oriented, and select-service lodging sectors.
After acquiring three Midwestern embassy suites by Hilton Hotels for US$124 million in January, American Hotel’s portfolio consisted of 96 hotel properties and 9,467 guestrooms across 30 states.
Specifically, it has 46 hotels and 3,893 guestrooms in its railway portfolio and 50 hotels and 5,574 guestrooms in its branded portfolio, including well-known brands such as Marriott.
American Hotel’s 7.9% yield is sustained by a payout ratio of about 77%. Any dips should be viewed as an opportunity to buy cheaper shares for more income.
Brookfield Property yields 5.1%
Brookfield Property has about US$66 billion of total assets. Its portfolio is anchored by a core portfolio of quality office and retail assets comprised of 149 office properties and 126 retail malls around the world.
The company also invests opportunistically in multifamily, triple net lease, industrial, hospitality, self-storage, and student-housing assets for higher returns.
Investing in Brookfield Property will be like earning juicy, growing rental income perpetually from a lucrative, global commercial real estate portfolio.
Management targets total returns of 12-15% and aims to hike its distribution by at least 5% per year. Indeed, Brookfield Property hiked its distribution by 5.3% in the first quarter.
Without accounting for the discounted units, which trade at about 25% below its IFRS value, an estimated long-term return of at least 10% is reasonable given its 5% yield today and its expected distribution growth of at least 5% per year.
Investor takeaway
Consistently contribute to your RRSPs to save taxes and invest in a tax-deferred environment. If you’re in a low tax bracket, you can let your RRSP contribution room to accumulate and contribute in the future.
Otherwise, check your most recent Notice of Assessment to see how much you can contribute (and remember to deduct any amount that you have contributed in the last year).
Consider investing in dividend stocks such as American Hotel and Brookfield Property to generate a diversified income stream for your retirement.
