Unless you live under a rock, chances are you’ve set foot in a property managed by RioCan (TSX:REI.UN). I’m not referring to the mom and pop stores on Main Street, but rather companies such as Loblaws, Costco and Walmart, which are all tenants of RioCan.
CEO Edward Sonshine practiced real estate law for 15 years before starting RioCan, allowing him to bring immense legal expertise to the business. The company’s name is derived from Retail, Industrial, and Office Canada.
The company’s share price is up 12% since the beginning of the year, with a dividend yield of 5.42%. Investors who buy $10,000 worth of shares at the beginning of the year and hold it until year-end can expect to make $542 from dividends alone!
Investors looking to make money from passive income as well as capital gains should consider buying shares of RioCan based on its portfolio of companies and high asset to liability ratio.
Portfolio of companies
In any industry, a company’s customers say a lot about the company.
Take Hudson’s Bay, for example. Some of its brands include Levi’s, Ralph Lauren and Tommy Hilfiger, to name a few. This in contrast to the now bankrupt Sears Canada, which carried brands such as LANDS’ END and U.S. Polo Assn. (if you haven’t heard of these brands, you just proved my point).
One of the reasons behind the longevity of Hudson’s Bay compared to Sears is the fact that consumers and other brands are willing to align themselves with companies offering well-known brands and a pleasant shopping experience.
This applies to RioCan, as its portfolio of tenants include Loblaws, Costco and Walmart. By having high-profile clients such as these three, other businesses are enticed to also do business with RioCan, thereby fuelling its business growth.
High asset to liability ratio
Without meaning to sound condescending, assets are a very important part of a real estate company’s business model.
Buildings are classified under assets and companies such as RioCan need buildings to rent out to tenants, who pay monthly fees for the space.
With assets of $14 billion compared to liabilities of $6.3 billion, RioCan has an asset to liability ratio of 2.22:1. Having a high ratio is beneficial to the company in one of two ways.
First, it allows the company to use the assets to generate revenue. For RioCan, this means renting out space for monthly income (which it does with a 97.1% occupancy rate).
Second, RioCan is able to borrow money against its assets, which means it has access to additional capital that can be put toward acquisitions or improving operational efficiency.
With a 5.42% dividend yield, RioCan gives bank stocks a run for its money. Investors looking to beef up their TFSA or RRSP should seriously consider RioCan for its dividend yield and potential for capital gains.
With tenants such as Loblaws, Costco and Walmart, RioCan has positioned itself as the go-to company for corporations looking to rent space. This reputation has enabled it to grow its business over the years, and evidence suggests it will continue to fuel growth.
The company also has an asset to liability ratio of 2.22:1, allowing it to generate revenue by using the assets and to fuel acquisitions by borrowing money against the assets. Both options grow the business, which drive the share price.
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 Chen Liu has no position in any of the stocks mentioned. The Motley Fool has the following options: long January 2020 $115 calls on Costco Wholesale and short January 2020 $180 calls on Costco Wholesale.