2 REITs for Well-Rounded Return Potential

High-yield REITs that might not preserve or grow your capital might become liabilities in the long run, so it’s usually wiser to seek a well-rounded return potential.

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Dividends are usually the highlight for most REITs. Dividends and the exposure to asset classes are generally not accessible to most retail investors. But that’s not the full breadth of a REIT’s scope. Even though most REIT stocks barely offer decent capital-preservation potential in the long term, some offer remarkable growth potential.

Naturally, this results in the dividend yields going down proportionally, but the overall return potential can be significantly more pronounced than the high-yield REITs. Two such REITs offer a well-rounded return potential — i.e., a decent combination of dividends and growth.

An apartment REIT

Shelter is the number one expense most people spend money on, and it’s the edge most residential investments, including apartment REITs like Killam Apartment REIT (TSX:KMP.UN), hold. This Nova Scotia-based REIT has an impressive portfolio worth $4.5 billion, including apartment buildings Mobile Home Communities (MHCs), and commercial properties.

However, apartments are the bread and butter of the REIT and make up 89% of the portfolio. The REIT has a presence in seven provinces, and this diversification allows its exposure to different market trends and rental patterns.

The stock itself has been an impressive grower and has returned nearly 57% in five years. If it keeps growing at the current pace, it may double your capital in a decade. The dividends are quite attractive as well, with a 3.46% yield. And the whole package is available at a slightly discounted valuation.

An industrial REIT

Granite REIT (TSX:GRT.UN) is one of the few well-established aristocratic REITs, and even though it’s currently offering a healthy 3.26% yield, its primary strength is the capital-appreciation potential it offers, especially at its current heavily discounted valuation.

The REIT has an impressive portfolio spread out over seven countries. There are 134 properties in total, and the area under the REIT’s control is 55.9 million square feet. What’s even more impressive is the 99.6% occupancy rate.

One main catalyst of the REIT’s growth is that a massive portion of its revenues comes exclusively from distribution and e-commerce-related properties and another sizeable chunk from industrial/warehouse properties, which can be considered part of the same vein. This e-commerce reliance in an era when e-commerce is rapidly growing has greatly benefitted the REIT.

It’s currently trading at a price-to-earnings ratio of just 4.65 and has returned roughly 170% to its investors in the last decade.  

Foolish takeaway

There are quite a few reasons why retail investors prefer to invest in real estate in Canada via REITs, and one of them is the hands-off nature of the investment. The cost barrier is quite low too, and you can have a much more potent and diversified portfolio than you can build on your own.

Plus, holding the two REITs in your TFSA will also offer you amazing tax benefits, including a tax-free dividend income stream to replace or augment a taxed rental income stream.

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 has positions in and recommends Killam Apartment REIT. The Motley Fool recommends GRANITE REAL ESTATE INVESTMENT TRUST.

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