Dividend yield: it’s the most important factor to consider when you are thinking about buying a dividend stock. But it’s not the only worthwhile factor. Sustainability of the yield, the probability growth of your payouts, even payout frequency might be factors worth considering.
Still, yield is the number that jumps out from all the others for a reason. If a dividend stock doesn’t offer you significant capital gains prospects, then dividends would be the only way to get a return on your investment. And if the return is too weak, you might be better off considering other investment assets.
Real estate businesses, especially REITs, tend to be quite generous with their dividends and often offer high yields. And if you are looking for a compelling yield, the following three REITs, which are offering 7% or more, should be on your radar.
A retail-focused REIT
RioCan REIT (TSX:REI.UN) is one of the largest REITs in the country. It has a market capitalization of $6.47 billion and a portfolio of 223 retail and mixed-use properties. The portfolio is highly concentrated in the GTA, with over half the annual rental income coming from properties located in the area. Over 90% of the company’s portfolio is made up of retail properties, while the rest is made up of office and mixed-use properties.
RioCan is offering a juicy yield of 7.1%, but the stock comes with a catch. It has already slashed its dividends once at the beginning of 2021. The payouts shrunk to $0.08 per share from $0.12 per share. And despite slashing its dividends, the company is still fielding a dangerously high payout ratio. The revenues are still in the red, and the stock is still 26% down from its pre-pandemic value.
The one silver lining is that it might not slash its dividends again anytime soon and risk alienating investors even further.
Another retail-focused REIT
Plaza REIT (TSX:PLZ.UN) is also going through a rough financial patch. Its revenues were never great (or consistently growing) to begin with, and since 2015, they have hovered between $20 and $30 million, only breaking through the higher threshold once. But the company has managed to sustain its dividends, and its payout ratio is stable enough.
The REIT is offering a tasty 7% yield. It has a total asset value of $1.1 billion and 268 properties in its portfolio. Geographically, 77% of its portfolio is concentrated in three provinces (Quebec, Ontario, and New Brunswick). The revenues sustaining your dividends are likely to increase once the pandemic is truly behind us and retail business moves out from the slump it’s languishing in.
An office-focused REIT
If you want to spread your real estate investment, focus not just on property but on geography as well; Inovalis REIT (TSX:INO.UN) might be worth looking into. It has a Europe-facing portfolio of 14 office properties located in two countries: France and Germany. The properties are strategically located in city centres near transport hubs, which makes them ideal for offices that want to make the commute easier for their employees.
Inovalis hasn’t been immune to the rough 2020 and saw a steep decline in revenues and gross profits. Consequently, the payout ratio went up and over the 100% threshold. Still, the company has sustained its dividends at a higher payout ratio in the past, and it hasn’t given any indication of slashing its dividends in the near future. The share price is still about 10% down from its pre-pandemic peak, which has grown the yield to a mouthwatering number of 8.3%.
With $30,000 invested in the three REITs, you can start a passive income of about $186 a month. That’s a decent enough sum, especially if none of the three REITs decide to slash its dividends. It would become even more bountiful if RioCan resumes its former payouts and the others start raising their dividends.
Speaking of REITs that offer compelling 7% yields...
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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 Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends Inovalis REIT.