Passive Income: A Top Canadian REIT Stock That Pays Monthly Dividends

Investors can earn instant passive income every month from top Canadian REIT stock that has the highest-quality and youngest apartment portfolio in Canada.

| More on:

Image source: Getty Images

Real estate investment trusts (REITs) are alternative options for investors seeking to diversify. However, in a high-interest era, residential REITs should benefit the most. Industry experts say the recent interest rate hike by the Bank of Canada to curb inflation will increase mortgage rates and housing costs while adding pressure to the tight rental market.

With housing affordability more challenging in June 2023, demand level will temper, as homebuyers stay on the sidelines. More people will also lean towards renting than owning properties. But from an investment perspective, a top Canadian residential REIT that pays monthly dividends could be an inflation buffer.

Killam Apartment (TSX:KMP.UN) is a screaming buy today for its strong fundamentals and attractive yield. At $17.71 per share, current investors enjoy an 11.08% year-to-date gain on top of the 3.91% dividend. A $30,992.50 position (1,750 shares) in this residential REIT will produce $100.98 in monthly passive income.

Growth-oriented REIT

The $2.07 billion REIT takes pride in its proven record of strong growth and robust development leasing. Killam acquires high-quality multi-residential assets and invests in joint-venture opportunities to maximize growth potential. As of March 31, 2023, the portfolio comprises 230 apartments (19,484 units), 40 manufactured home communities or MHCs (5,975 units), and nine commercial properties.

In the first quarter (Q1) of 2023, property revenue, net operating income (NOI), and net income rose 9.6%, 12.3%, and 39%, respectively, to $84.9 million, $50.8 million, and $83.5 million versus Q1 2022. The Apartment same-property occupancy rate at the quarter’s end was 98.6%. Its president and chief executive officer (CEO) Philip Fraser said, “Fundamentals in our core markets are stronger than ever.”

Fraser expects the portfolio to maintain healthy revenue and NOI growth in the quarters ahead. Killam’s capital-recycling program aims to dispose of or recycle non-core assets ($100 million to $150 million target) to maximize value, enhance capital flexibility, and strengthen the balance sheet.

For 2023, 450 suites repositioning will translate to $2.5 million in annualized revenue growth. The total opportunity to reposition 5,500 suites should result in $28 million in annualized revenue. 

The REIT’s extensive development program is also an important component of its long-term growth plan, and the $1.7 billion development pipeline should support future growth. Killam will have 320 new high-quality suites in the next two years with the completion of three development projects.

Growing market rents

Because of higher-than-normal lease renewals in Q1 2023, the weighted average rental rate increased by 3.8% year over year. The rental rate increase for new tenants that moved in during the quarter was 14.3%. Killam averages 30% to 32% of unit turnover historically, except in the last two years due to the tightening of Canada’s housing and rental markets.

Still, Killam typically generates rental increases by moving rental rates to market or where market demand exists. Management believes that population growth across Canada will drive market rents higher. More importantly, it expects monthly distributions to increase and payout ratios to decrease over time.  

High-quality and young portfolio

Killam Apartment is a solid investment prospect if you want exposure to the residential sub-sector of the real estate market. Besides owning Canada’s highest-quality and youngest apartment portfolios, the monthly dividend payouts should be sustainable and rock steady for years.

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 positions in and recommends Killam Apartment REIT. The Motley Fool has a disclosure policy.

More on Dividend Stocks

TELECOM TOWERS
Dividend Stocks

2 Top Telecommunication Stocks to Buy on the TSX Today

Two telco stocks, but not the dominant industry players, are buying opportunities on the TSX today.

Read more »

worry concern
Dividend Stocks

Is Now Actually the Right Time to Buy BCE Stock?

Looking for a great stock to buy at a serious discount? It’s the right time to buy BCE (TSX:BCE) stock…

Read more »

Illustration of bull and bear
Dividend Stocks

Defensive Sectors: A Safe Haven for Canadian Investors in a Bear Market       

As uncertainty continues to increase in the stock market, buying stocks in defensive sectors can help protect your capital.

Read more »

question marks written reminders tickets
Dividend Stocks

Up 10% in a Month, Is Loblaw Stock a Buy?

Loblaw stock (TSX:L) has seen a strong increase in share price in the last month, but could more be on…

Read more »

top TSX stocks to buy
Dividend Stocks

How to Build a Bulletproof Monthly Passive-Income Portfolio With Just $10,000

Investing in monthly paying dividend ETFs can help you generate a steady stream of recurring passive income for life.

Read more »

money cash dividends
Dividend Stocks

Passive Income: How to Make $215.56 Per Month Tax Free

Passive income is easy to make; all it takes is consistency and contributions, and, of course, the right dividend stock…

Read more »

HIGH VOLTAGE ELECRICITY TOWERS
Dividend Stocks

Why Utility Stocks Could Be Canada’s Safeguard Against Growing Rates

Utility stocks like Fortis Inc (TSX:FTS) can do well, despite rising interest rates.

Read more »

eat food
Dividend Stocks

The Best Canadian Food Stocks in December 2023

Investors can add the best Canadian food stocks to their portfolios for capital protection and stability.

Read more »