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Boost Your Tax-Free Income by 60% With These 3 Bountiful REITs

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Many income investors are hungry to give themselves raises through their TFSA income streams, but they don’t want to assume a higher risk a distribution cut or reduction. Now that we’re no longer in an environment with rock-bottom interest rates, I believe there is the opportunity to grab a much higher yield without taking on the higher degree of risk that typically comes with mega-high-yielding securities.

In a prior piece, I’d noted that the slightly higher rate environment had “raised the yield bar” across various investment instruments. With the economy slowing down in conjunction with the frequency of rate hikes over the next year or two, however, the price of admission into such high yielders may stand to rise again, as investors ditch their less-attractive, risk-free, fixed-income securities for more attractive dividend-paying stocks and REITs.

I’m going to have a look at three of the most bountiful REITs that could allow the average income investor to give themselves a raise of around 60%. To arrive at the 60%, I’m assuming readers have a portfolio yield no higher than 5%, which has essentially become “the new 4% rule” with the yield bar that’s now raised.

Without further ado, here are the REITs.

Automotive Properties REIT (TSX:APR.UN)

The 7.5%-yielding REIT that owns and operates the properties rented out to auto dealerships is widely misunderstood by investors. Yes, auto is incredibly cyclical, and the last thing that an income investor wants is a scenario where their distribution gets slashed in the event of an economic downturn. What investors may not know about Auto Properties, however, is the fact that the REIT has its tenants locked in to leases that have a weighted term of 13.7 years as of the end of 2018.

While there’s a very high chance of a recession over the next 13 or so years, Auto Properties REIT’s distribution is likely to be unscathed by the turmoil faced by its auto dealing tenants. With a sound balance sheet and growth opportunities that could allow for distribution hikes moving forward, Auto Properties is one of the few REITs that can help income investors get a raise without the added risk.

Inovalis REIT (TSX:INO.UN)

With a massive 8.1% yield, Inovalis is an anomaly when you consider the fact that shares are off just 3% from their all-time highs. A yield north of 8% that isn’t the result of a colossal share price crash? It seems too good to be true, and as the share price would suggest, the REIT is performing quite well with a growth-oriented management team that continues to pull out all the stops in its European markets of operation.

With new financing slated to bolster distribution growth and capital gains potential moving forward, I’d back up the truck on Inovalis if you’re serious about getting a raise without introducing too many risks to your portfolio.

NorthWest Health Properties REIT (TSX:NWH.UN)

The 6.9%-yielding NorthWest Health is another well-run REIT that’s been on a tear of late with shares up over 50% from the July 2015 bottom. The owner and operator of health-related properties including hospitals, clinics, and medical offices is riding what I believe is a very powerful secular tailwind that’ll allow the REIT to raise rents as the demand for its properties soars with time.

The Baby Boomers are ageing, they’re getting sicker, and more hospitals, clinics, and all the sort are going to be needed to fill the demand. That’s a multi-decade window of opportunity for NorthWest, and as the company expands its property portfolio through various global acquisitions, I think that NorthWest Health could provide income investors with the best of both worlds.

It has a high, growing distribution with capital gains that are comparable to those of a growthy stock. That’s the power of playing on the right side of a secular trend!

Stay hungry. Stay Foolish.

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 Joey Frenette has no position in any of the stocks mentioned. The Motley Fool owns shares of AUTOMOTIVE PROPERTIES REIT. Automotive Properties is a recommendation of Stock Advisor Canada and Dividend Investor Canada. Inovalis is a recommendation of Dividend Investor Canada. NorthWest Health is a recommendation of Stock Advisor Canada.

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