Looking for Monthly Passive Income? These 2 REITs Are for You

Canadian REITs had a substantial selloff from rising interest rates this year. If you need current income, you can explore REITs for ideas.

| More on:
Payday ringed on a calendar

Image source: Getty Images

The higher inflation and higher interest rate environment has brought us to Guaranteed Investment Certificates (GICs) that provide interest income of about 5% a year. You get principal protection, but your money will be locked in for a year. And interest income is taxed at a high rate — your marginal tax rate if the GIC is held in a non-registered account.

You can get higher passive income monthly with the following real estate investment trusts (REITs). Some investors view REITs as bond replacements, but REITs aren’t perfect bond replacements, because they’re subject to systematic risk and business risk.

Dream Industrial REIT

At $11.91 per unit at writing, Dream Industrial REIT (TSX:DIR.UN) provides a yield of almost 5.9%, paid out as monthly cash distributions. The demand for its industrial properties remain high, as illustrated by its in-place and committed occupancy rate of about 99%, which is 1% higher than it was a year ago. The weighted average lease term for is portfolio is approximately 4.7 years, which is an improvement from 4.4 years a year ago.

The REIT also reported for the end of September that the estimated market rent to base rent spread was 42.1% and 6.9%, respectively, for its Canadian and European portfolio, respectively. This means it can continue to expect rent increases on renewals.

Additionally, its net-debt-to-assets ratio improved 3.7% to 29.2% year over year. Its interest coverage ratio also improved to 13.4 times from 6.2 times a year ago. At the end of the third quarter, the stock’s net asset value (NAV) was $17.05 per unit. So, it trades at a 30% discount to its NAV.

Currently, analysts believe the REIT should be worth $15.07 over the next 12 months, which represents a discount of 21%. So, investors can potentially get a nice monthly income and decent price appreciation.

NorthWest Healthcare Properties REIT

For more income or diversification, you can consider a position in global healthcare REIT, NorthWest Healthcare Properties REIT (TSX:NWH.UN). At $9.68 per unit at writing, it offers a juicy yield of about 8.3%.

It collects rental income from a diversified portfolio of healthcare properties, including hospitals and medical office buildings. It has more than 2,100 tenants, maintains a high occupancy of about 97%, and has a weighted average lease expiry roughly 14 years. Its cash flow is protected from inflation, as about 82% of its rents are indexed to inflation. Furthermore, more than 80% of its tenants has government support.

The stock has corrected 30% year to date primarily from higher interest rates. For higher-risk investors, it’s a good opportunity to park some money at a yield of over 8%.

Taxation on REIT cash distributions

REITs pay out cash distributions that are like dividends but are taxed differently. In non-registered accounts, the return of capital portion of the distribution reduces the cost base. The return of capital is tax deferred until unitholders sell or their adjusted cost base turns negative. 

REIT distributions can also contain other income, capital gains, and foreign non-business income. Other income and foreign non-business income are taxed at your marginal tax rate, while half of your capital gains are taxed at your marginal tax rate. If you hold REITs inside tax-advantaged accounts like a TFSA, RRSP, Registered Disability Savings Plan, or Registered Education Savings Plan, then, you can sidestep the above complexity. When unsure of where best to hold REIT units, contact a tax professional.

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 Kay Ng has positions in Dream Industrial Real Estate Investment Trust. The Motley Fool recommends Dream Industrial Real Estate Investment Trust and NorthWest Healthcare Properties Real Estate Investment Trust. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Dial moving from 4G to 5G
Dividend Stocks

Down by 15%: Is BCE Stock a Good Investment in January 2023?

Few companies are truly “too big to fail,” but most market leaders are far more resilient against market headwinds or…

Read more »

edit Business accounting concept, Business man using calculator with computer laptop, budget and loan paper in office.
Dividend Stocks

Looking for $200/Month in Alternative Income? Buy 530 Shares of This Stock

Do you want to earn $200 monthly alternative income for the next few years? Then accelerate your investments in this…

Read more »

IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT
Dividend Stocks

Deadline Coming: 3 TFSA Stocks to Buy Now Before Dividend Payouts

Invest in RNW stock and 2 other TFSA friendly names before this fast-approaching deadline to get the full 2023 dividend.

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

Passive Income: How to Earn Nearly $367 Per Month in Your TFSA Portfolio

Top TSX dividend stocks now trade at discounted prices for TFSA investors seeking passive income.

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Dividend Stocks

3 Stocks I’d Buy — But I’m Waiting for a Dip

After the recent bounce, It may be smart for investors to wait for a dip before they buy these solid…

Read more »

TFSA and coins
Dividend Stocks

5 Stocks to Buy for $5000/Year in Tax-Free Passive Income

TSX dividend stocks such as Enbridge and TD Bank can help you earn tax-free income via dividends and capital gains…

Read more »

woman data analyze
Dividend Stocks

Passive Income: How to Generate an Average of $385 Per Month in a TFSA

Top TSX dividends stocks now trade at discounted prices for TFSA investors seeking passive income.

Read more »

edit Colleagues chat over ketchup chips
Dividend Stocks

How to Earn $5,350/Year in Passive Income — TAX FREE!

Canadian investors could earn over $5,000/year in tax-free passive income by targeting stocks like First National Financial Corp. (TSX:FN) and…

Read more »