Canadian Investors: 2 No-Brainer Dividend Stocks for Monthly Income

Consider earning monthly income tax-free by buying and holding these two dividend stocks in your TFSA.

Kay Ng

Author Bio Kay graduated from the University of British Columbia with a Bachelor of Science in Computer Science and furthered her studies in financial markets, finance, and financial accounting. She began investing in dividend stocks in 2008, turning an early interest into a lasting passion. Over the years, Kay has refined her investment approach to focus on high-quality businesses, using fundamental analysis and valuation to identify long-term investment opportunities. Her investment research and articles have been featured in The Motley Fool, Sure Dividend, and Seeking Alpha. Outside of investing, Kay enjoys playing the piano, from popular songs learned by ear to challenging classical compositions. Her favourites include Fantaisie-Impromptu by Frédéric Chopin and La Campanella by Franz Liszt. Education Bachelor of Science (BSc) in Computer Science, University of British Columbia Further studies in financial markets, finance, and financial accounting Areas of Expertise Dividend stocks, fundamental analysis, company valuation, quality investing, long-term investing, business fundamentals, and identifying investment opportunities in high-quality companies. Social Media Profiles LinkedIn Favorite Investment Quotes “The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go.” — Benjamin Graham “A market downturn doesn’t bother us. It is an opportunity to increase our ownership of great companies with great management at good prices.” — Warren Buffett

Published June 21, 2021 2:41 pm EDT

Who doesn’t enjoy receiving income that flows in every month on its own? Right now, Canadians can lock in safe monthly income by buying these real estate investment trusts (REITs).

H&R REIT

Income-seekers should not be dissuaded by H&R REIT (TSX: HR.UN) because of its dividend cut last year during the pandemic. The reason is that investing is forward-looking.

First, investors shouldn’t be worried about another dividend cut. The diversified REIT’s funds-from-operations (FFO) payout ratio was 43.5% in the first quarter, which provides a much bigger margin of safety than the Q1 2021 76.5%.

Second, the REIT’s net asset value (NAV) per unit stayed essentially flat at $22.24 versus a year ago. At $16.33 per unit, the stock trades at a meaningful discount of more than 26% from its NAV.

Third, in Q1, H&R REIT reported its office portfolio remained high quality. The portfolio had a high occupancy of 99.7% and an average remaining lease term to maturity of about 12 years. Moreover, tenants with investment-grade ratings contribute to 85.8% of the revenues. It also highlighted that its office tenants in Alberta are some of the strongest companies in the energy sector with an average remaining lease term of 15.8 years.

Its residential and industrial portfolios also remain defensive through the pandemic. Its residential portfolio has a recent occupancy of 88.4%, while its industrial portfolio’s recent occupancy rate was 95.8% with an average remaining lease term of 6.2 years.

Its retail portfolio has also rebounded with a recent occupancy of 90.3%. Its average remaining lease term is 6.8 years.

H&R REIT enjoys higher weighted average cap rates of 6.54% and 6.79% on its office and retail portfolios. Combined with its diversified portfolio’s multi-year leases, it should have no problem maintaining its payout which equates to a yield of 4.2%. On improving conditions, the REIT could even restore some of its cut cash distribution from last year.

In summary, the stock is a value pick and could be an excellent turnaround investment through 2022 for monthly income and price appreciation.

Fronsac REIT

You would also love the stability that Fronsac REIT (TSXV:FRO.UN) brings to your portfolio. Actually, the company will soon better reflect what it does with a name and ticker change to Canadian Net Real Estate Investment Trust (TSXV:NET) on June 22.

You might have heard of large triple-net players in the U.S. like Realty Income that pay solid income and tend to trade at premiums. Fronsac REIT operates under a similar business model, as a leading investor in Canadian commercial real estate leased on a triple net basis.

However, to Canadian investors’ advantage, as Fronsac REIT is a smaller player, it is relatively unknown and trades at a discount to intrinsic value.

Triple-net leases require that variable costs like insurance, taxes, and maintenance are paid by tenants instead of the REIT, which saves tonnes of costs and results in more stable and predictable cash flows for Fronsac. Of course, this also means a more secure monthly cash distribution for unitholders.

Fronsac has proven to be a strong dividend stock with the following results in 2020 during the pandemic. Net operating income growth of 38%, an occupancy rate of 99%, FFO per unit growth of 18%, and an FFO payout ratio of 53%. Currently, it yields nearly 3.8%.