Income Stability: 2 Top-Ranked REITs for Real Estate Investors

The True North Commercial stock and H&R stock are among Canada’s top-ranked REITs. Invest in one or both if you want exposure to the real estate market and want to earn stable rental income like a real landlord.

| More on:
Pixelated acronym REIT made from cubes, mosaic pattern

Image source: Getty Images

Canadian investors who want exposure to the real estate sector can purchase real estate investment trusts (REITs) on the TSX. While you don’t have actual ownership of investment properties, there’ll be cash flows for income stability. Most REITs can afford to pay higher-than-average dividends because of the tax breaks available to large property landlords.

Today’s real estate market is red-hot, although not conducive to buying for investors due to inflated prices. Some industry observers predict the bubble will burst soon. Cliff Stevenson, Chairman of the Canadian Real Estate Association (CREA), acknowledges that a housing crisis exists and will not disappear on its own.

Two top-ranked REITs, True North Commercial (TSX:TNT.UN) and H&R (TSX:HR.UN), are excellent choices if you want to add the real estate asset class to your portfolio basket. The dividends are generous and should be sustainable, given the strength of their property rental businesses and tenant base.

Security of cash flows

Income investors prefer True North over other REITs because of its high yield and tenant profile. At only $7.37 per share at writing, you can partake of the ultra-high 8.28% dividend. Since the payouts are monthly, a $50,000 position will produce $345 in passive income every month. You can keep reinvesting the dividends for faster churning of your money.

True North boasts a high-profile tenant base that includes the federal government of Canada and three provincial governments. As a shareholder in this $645.86 million REIT, you’d be a pseudo-landlord collecting rental income from government lessees and credit-rated business entities. This group contributes 76% of total revenues.

The portfolio of 45 commercial properties enjoys a high 97% occupancy rate, with an average lease term of 4.7 years. True North’s principal focus is on urban areas. Management’s investment criteria are straightforward. Focus on urban areas for property acquisitions. Be selective and choose only high-quality tenants. The result should be stable contractual cash flows.

Diversified asset class

H&R is a fully internalized REIT and one of the largest in Canada. The $4.78 billion REIT leases out 457 properties consisting of four real estate asset classes. Its office, (38%), retail (31%), residential (23%), and industrial (8%) properties are in Canada and the United States.

In 2020, H&R suffered a significant drop in occupancies due to the fallout from the pandemic. Its total loss in the first half of last year was slightly above $1 billion. However, the business has improved, as evidenced by the $254.3 million net income in the six months ended June 30, 2020. The property operating income also increased 1.7% year-over-year.

According to H&R President and CEO, Tom Hofstedter, the REIT’s rebound in 2021 reflects the quality of the portfolio and strength of the balance sheet. As of June 30, 2021, the average lease terms of the office, retail, and industrial portfolio are 12, 6.7, and 6.5 years, respectively. There are 24 residential properties in select U.S. markets. The share price and dividend yield are $16.29 and 4.32% if you invest today.

Portfolio diversifier

Apart from the competitive investment returns from True North Commercial, H&R, and other established Canadian REITs, you’d have a suitable portfolio diversifier. Some market analysts even compare the asset class to low-risk bonds.  There’s income stability without vacancy risks and the responsibilities of an actual landlord.

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 Christopher Liew has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

More on Dividend Stocks

funds, money, nest egg
Dividend Stocks

The Best Way to Make $1 Million When a Bull Market Returns

Here are five quality TSX stocks investors can buy and hold for the long term, allowing them to increase their…

Read more »

Gold medal
Dividend Stocks

3 Undervalued Winners Just Begging to Be Invested in Today

Three undervalued stocks from three underperforming sectors are winners and screaming buys today.

Read more »

Man data analyze
Dividend Stocks

3 Top Dividend Stocks I Can’t Wait to Buy in 2023

Top Dividend Aristocrats are worth buying in almost every market, especially if you hold them long term. However, weak markets…

Read more »

financial freedom sign
Dividend Stocks

Buy 2,911 Shares in This TSX Stock for a Shot at $1 Million in 32 Years

You might not see insane growth overnight, but you won't see insane drops either from this TSX stock offering a…

Read more »

Dividend Stocks

A Dividend Heavyweight I’d Buy Over Enbridge Right Now

BCE Inc. (TSX:BCE) is a dividend heavyweight I prefer over Enbridge Inc. (TSX:ENB) due to its value and impressive income…

Read more »

Hour glass and calendar concept for time slipping away for important appointment date, schedule and deadline
Dividend Stocks

2 Best Monthly Dividend Stocks for March 2023

There are plenty of monthly dividend stocks to buy right now, but prospective investors should take a closer look at…

Read more »

A bull and bear face off.
Dividend Stocks

The 3 TSX Stocks to Buy Before a Long-Term Bull Market Begins to Build

The TSX may not go bullish for a while, even when the economy recovers from a recession, but investors should…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

TFSA Investors: Make $200 in Monthly Passive Income With This 1 TSX Dividend Stock

Here’s an attractive dividend stock TFSA investors can buy now to earn $200 in monthly passive income.

Read more »