3 Niche REITs for Stable Dividend Income

Many niche REITs tend to be dominant players in their respective markets, making them potentially secure against major competition.

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Pixelated acronym REIT made from cubes, mosaic pattern

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When it comes to investing in dividend stocks that can maintain their dividends consistently for a relatively long time (ideal dividends), one thing you should look into is the competitive advantage of the company and the competitive landscape of the industry it’s in. It’s an area where industries/companies that cater to a niche market are usually at a distinct advantage.

With that in mind, three REITs that cater to a specific class of real estate that you might consider adding to your dividend portfolio for the competitive advantage they offer.

Niche asset: Senior housing

Senior housing and nursing homes are a relatively stable market segment, which gives Chartwell Retirement Residences (TSX:CSH.UN) its edge. The company operates over 185 residences in four provinces composed of about 25,000 suites.

As an owner and operator of these properties, Chartwell is technically more than just a typical REIT, that is, focused only on the real estate aspect of these properties, but since these properties are the backbone of its portfolio, we can count it among the ranks.

It’s currently offering a decent yield of 5.27%, but its valuation severely undermines the attractive yield and the fact that it’s a Dividend Aristocrat. Its capital appreciation potential has been non-existent for the last five years, which is a pattern that might stick around.  

Niche asset: Automotive properties

Automotive Properties REIT (TSX:APR.UN), as the name suggests, focuses on a very specific real estate asset class: automotive properties. And the company, thanks to its contracts with some of the most stable vehicle manufacturers in the world, can be reasonably sure about the consistency of its rentals. Like most other retail properties, location is quite important for automotive dealers, which results in long-term leases.

This reflects in the weighted average lease term of the REIT (11.9 years). The REIT is currently offering a juicy 5.9% yield, and the payout ratio is quite stable as well (29.5%). The portfolio is split into three groups, though two of them make up the bulk of the NOI: mass market and luxury, while ultra-luxury only makes up about 6.2% of the NOI. This division seems quite healthy.

Niche asset: Grocery-anchored properties

Slate Grocery REIT (TSX:SGR.U) has a portfolio that’s 100% anchored by grocery properties. Grocery, while too “mainstream” to be called a niche asset class within real estate, has some distinct advantages, the primary being that grocery stores are businesses that survive and thrive even during economically challenging times.

Slate Grocery is headquartered in Canada, but the portfolio is completely U.S.-based. The current yield is a mouthwatering 8%, and the payout ratio is at 49.1%. At this yield, the REIT can offer you $100 a month in dividend income with just $15,000 invested. And thanks to the stability of the underlying asset, the REIT might be able to sustain its already financially stable payouts for the foreseeable future.

Foolish takeaway

All three REITs focus on commercial real estate and focus on a specific CRE asset class. If you try to look for similar niche REITs within the residential real estate sector, you might be disappointed. REITs are some of the most favourite dividend stocks for Canadian investors for their yield and frequency, and you can add to their desirability with dividend sustainability.  

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 owns shares of and recommends AUTOMOTIVE PROPERTIES REIT.

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