Which Is Better for Top Dividends: Energy Stocks or REITs?

H&R Real Estate Investment Trust (TSX:HR.UN) and a popular energy stock come under the microscope today: which is the better buy for investors seeking dividends?

| More on:
Gold medal

Image source: Getty Images.

Energy and real estate have long been a source of reliable passive income. Risk-averse investors who prefer to buy and hold for the long term and get in low and sell high look to these two sectors for regular payouts. Dividend stocks are great for bulking out your TFSAs and RRSPs, and if you get the right ones, then you could be well on the way to setting yourself up with a nice nest egg or a more comfortable retirement.

Here are three of the best dividend stocks that money can buy. You’ll find two picks from the energy industry and an REIT that pays a large dividend. But which of these three should you buy? Let’s take a look at some indicators of quality and value to see whether any of them is a buy.


If you’re looking for REITs that pay good dividends, then H&R REIT might be just your cup of tea. It’s great value at the moment and is currently changing hands with a 36% discount off its future cash flow value. Looking at its data, we can see a P/E of 10.1 times earnings and a P/B of 0.8 times book.

But is that low P/E ratio a red flag? It seems a little too low; and a wayward PEG ratio doesn’t bode well, either. Moving on, we can see the cause of the problem: an 81% expected contraction in earnings over the next one to three years. A low return on equity of 8% last year doesn’t do much to raise the quality of this stock, though a dividend yield of 6.86% is tempting.

With a debt level of 91.6%, H&R REIT follows the current trend for REITs to hold close to 100% of their net worth in debt. Ideally, you want a REIT that holds very low debt, with the common-sense solution when faced with risky trusts being to pass on all of them, alluring as their juicy dividends may be.

Enbridge Income Fund Holdings (TSX:ENF)

Trading at a huge discount of more than 80% of its future cash flow value, this stock is an absolute steal at the moment. In terms of a P/B ratio, Enbridge Income Fund Holdings is trading at book price today, which is an encouraging start. A P/E of 5.2 times earnings seems worryingly low, though: a 15.3% expected contraction in earnings over the next one to three years means that this is definitely not a stock for growth investors.

However, there are three very good indicators that this is a high-quality stock. A return on equity of 19% last year shows that shareholders’ funds are being made good use of, while a large dividend yield of 6.88% and a balance sheet displaying no debt are good signs.

The bottom line

There may be better energy stocks out there, and likewise better REITs, than the picks above. Is one area better than another for dividends? Energy is the more defensive play, making it a less-risky choice for dividend investors. Looking at debt held by REITs is a good way to ascertain whether or not to buy, while earnings forecasts are a good indicator for energy stocks.

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 Victoria Hetherington has no position in any of the stocks mentioned.

More on Dividend Stocks

financial freedom sign
Dividend Stocks

Million-Dollar TFSA: 1 Way to Achieve to 7-Figure Wealth

Achieving seven-figure TFSA wealth is doable with two large-cap, high-yield dividend stocks.

Read more »

analyze data
Dividend Stocks

How Much Will Manulife Financial Pay in Dividends This Year?

Manulife stock's dividend should be safe and the stock appears to be fairly valued.

Read more »

food restaurants
Dividend Stocks

Better Stock to Buy Now: Tim Hortons or Starbucks?

Starbucks and Restaurant Brands International are two blue-chip dividend stocks that trade at a discount to consensus price targets.

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Dividend Stocks

1 Growth Stock With Legit Potential to Outperform the Market

Identifying the stocks that have outperformed the market (in the past) is relatively easy, but selecting the ones that will…

Read more »

money cash dividends
Dividend Stocks

Passive Income: The Investment Needed to Yield $1,000 Per Annum

Do you want to generate a juicy passive-income stream? Here's a trio of stocks that can generate a yield of…

Read more »

Shopping card with boxes labelled REITs, ETFs, Bonds, Stocks
Dividend Stocks

Invest $10,000 in This Dividend Stock for $1,500.50 in Passive Income

If you have $10,000 to invest, then you likely want a core asset you can set and forget. Which is…

Read more »

Dividend Stocks

Here’s the Average TFSA Balance in 2024

The average TFSA balance has steadily risen over the last six years and surpassed $41,510 in 2023. Will the TFSA…

Read more »

potted green plant grows up in arrow shape
Dividend Stocks

TFSA Set and Forget: 2 Dividend-Growth Superstars for the Long Run

I'd look to buy and forget CN Rail (TSX:CNR) and another Canadian dividend-growth sensation for decades at a time.

Read more »