1 REIT Yielding +7% Every Income-Hungry Investor Should Consider

Boost income from your portfolio by investing in Dream Industrial Real Estate Invest Trst (TSX:AAR.UN).

| More on:
The Motley Fool

Rising interest rates and fears of the impending meltdown of the retail industry have caused investors to view real estate investment trusts, or REITs, with some concern.

However, even after Bank of Canada’s early September surprise rate hike, which pushed the headline overnight rate to 1%, interest rates remain well below their long-term historical average. This means that those investments typically perceived as income-generating assets, such as bonds and guaranteed investment certificates (GICs), continue to offer little in the way of yield.

That has only intensified the hunt for yield among income-hungry investors, especially those in retirement who are looking to bolster their income, which has boosted the popularity of REITs.

While some REITs are facing considerable headwinds because of the retail meltdown and the demise of the shopping mall, others are poised to grow as the demand for warehousing and other industrial properties grows. This makes Dream Industrial Real Estate Invest Trst (TSX:DIR.UN), which owns 212 light industrial properties across Canada, an attractive investment. 

Now what?

What makes Dream Industrial especially appealing is that it has no exposure to retail, shielding it from the carnage triggered by e-commerce and the rise of Amazon.com, Inc., which has sparked a deluge of retail bankruptcies. The most prominent of which was Sears Canada Inc.’s petition for bankruptcy back in June.

In fact, demand for light industrial properties can only rise because of the e-commerce revolution.

You see, the rise of e-commerce and online retail sales is driving demand for warehousing and distribution facilities. Real estate logistics specialist Prologis Inc. has estimated that every dollar spent online requires three times the warehouse space of one spent at a brick-and-mortar retailer. That can only lead to a sharp uptick in demand for light industrial properties that could be used as distribution centres.

The good news for industrial REITs doesn’t stop there. Canada’s manufacturing sector is also experiencing solid growth.

According to data from Statistics Canada, July 2017 manufacturing sales grew by 3.4% year over year. The Markit Canada Manufacturing Purchasing Managers Index for September 2017 rose to 55 points, or 0.4 points higher than the 54.6 reported for August. That indicates manufacturing activity is expanding with firms pointing to higher demand, product development, and exports.

While these factors point to a positive outlook for industrial REITs, Dream Industrial stands out because of a range of important traits that make it especially appealing. These include its geographically diversified portfolio, which sees most of its net operating income generated by multi-tenant properties, thereby reducing the risk of vacancies and their impact on its earnings. It reported an outstanding occupancy rate of 96.8% at the end of the second quarter 2017 and an impressive 86% tenant retention rate. Dream Industrial also has a relatively low level of debt in proportion to total assets and a well-laddered debt profile.

So what?

These characteristics all contribute to ensure the sustainability of its regular monthly distribution, which has a juicy yield of almost 8%. The payout ratio of 87% of adjusted funds flow from operations for the six months to June 30, 2017, further attests to the distribution being sustainable. The forecast explosion in demand for industrial properties coupled with ongoing manufacturing growth and Dream Industrial’s solid diversified property portfolio make it an appealing investment for investors seeking yield.

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 Matt Smith has no position in any stocks mentioned. David Gardner owns shares of Amazon. The Motley Fool owns shares of Amazon.

More on Dividend Stocks

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »