Investing in real estate investment trusts, or REITs, allows you to create a passive stream of dividend income and diversify your investments. You’ll get exposure to the real estate sector at a low cost and can steadily build a passive-income empire over time, as a majority of REITs offer attractive yields to shareholders.
Comparatively, to be an active landlord requires a huge amount of capital, as the average home price is around $1 million in Toronto. It means homeowners will majorly have to fund their purchase with debt, which is a significant cost. Other costs associated with home ownership include maintenance, taxes, paperwork, and vacancies.
These two TSX stocks should be on the radar of income-seeking investors this year.
Slate Grocery REIT stock
A pure-play grocery-focused REIT (real estate investment trust), Slate Grocery REIT (TSX:SGR.UN) primarily owns and operates properties in the United States. With a portfolio of 117 properties south of the border, spanning 15.3 million square feet, Slate Grocery has over $2.4 billion total assets.
As consumers need groceries, food, and related essential items across economic conditions, Slate Grocery is fairly recession-proof and is a defensive buy in 2023. Moreover, the company’s grocery stores are located near end consumers, allowing it to optimize transportation costs and fulfillment timing.
Typically, grocery-anchored REITs enjoy strong tenant demand and low vacancy rates providing enough opportunities for consistent growth in rentals.
SGR’s portfolio consists of the largest and most credit-worthy grocers globally, which includes six of the top seven U.S. grocers in terms of market share.
The company’s leasing spreads have outpaced inflation consistently over the past decade. For instance, it completed 590,000 square feet of leasing at a weighted average rent spread of 10% in the first quarter (Q1) of 2023. Around 5.2 million square feet of leases expire in the next three years, providing significant near-term upside for the company. Further, 96% of tenants are on net leases, which offers protection against rising operating expenses.
Slate Grocery also pays shareholders an annual dividend of $1.15 per share, translating to a yield of 9.1%, which is very attractive.
Dream Industrial REIT stock
One of the largest REITs in Canada, Dream Industrial REIT (TSX:DIR.UN) is valued at a market cap of $3.6 billion. It owns, manages, and operates a portfolio of 321 industrial assets totaling 70.4 million square feet of gross leasable area in Canada, Europe, and the U.S.
It aims to deliver returns to shareholders through predictable cash flows backed by its high-quality portfolio and an investment-grade balance sheet in addition to growth in net asset value and cash flow per unit.
Dream Industrial REIT pays shareholders an annual dividend of $0.70 per share, suggesting a forward yield of 5.4%.
In Q1 of 2023, Dream Industrial increased funds from operations by 13.3% year over year to $0.25 per unit. Its net operating income also grew 13% to $74.8 million compared to $66.2 million in the year-ago period.
Due to a significant rise in rental income and acquisitions in major Canadian provinces, Dream Industrial reported a net rental income of $81.5 million in Q1, an increase of 24.7% year over year.
Dream Industrial REIT stock also trades at a discount of 33% to consensus price target estimates.
