Among the dividend-paying stocks, real estate investment trusts, or REITs, are famous for their high payout ratios, making them an attractive investment to earn a steady income. Thus, investors seeking passive income could consider adding a few high-yield REITs to their portfolios.
However, investors should note that macro uncertainty, high debt, and increased interest expenses due to higher rates have weighed on the shares of REITs. This has driven their yields higher. Thus, this could be an excellent time to capitalize on the high yield of fundamentally strong REITs. Against this backdrop, here are my top picks.
Image source: Getty Images
NorthWest Healthcare Properties
NorthWest Healthcare Properties (TSX:NWH.UN) pays a monthly dividend of $0.067 per share, reflecting a high yield of over 12% (based on its closing price of $6.44 on July 4). Its high yield reflects a sharp pullback in its price due to the higher interest rates, temporarily elevated debt position, and lower transaction volumes.
While a very high yield raises concerns over the sustainability of the payouts, Northwest Healthcare owns a portfolio of healthcare real estate that include top-quality tenants, including hospital operators, individual practitioners, and rehabilitation clinics. Moreover, about 80% of its tenants have government support.
Its geographically diversified real estate infrastructure and high-quality tenant base add stability to its business and position it well to cover its payouts. Further, it owns 233 income-generating properties with an occupancy rate of 97%, which is impressive. In addition, NorthWest Healthcare benefits from a long weighted average lease expiry term of approximately 13.6 years. Also, with about 83% of its leases carrying annual rent indexation, the REIT is poised to deliver solid same-property net operating income growth.
NorthWest Healthcare’s management is taking measures to deleverage its balance sheet, including the sale of non-core assets and repayment of debt. This could add stability to its share price.
Overall, the pullback in its share price, high yield, and top-quality real estate infrastructure make NorthWest Healthcare an attractive investment to earn passive income.
SmartCentres Real Estate Investment Trust
Speaking of high-yield REITs, SmartCentres Real Estate Investment Trust (TSX:SRU.UN) is another attractive play to earn passive income. With its 188 strategically located, income-producing assets SmartCentres remains well positioned to enhance its shareholders’ returns through regular dividend payments.
It pays a monthly dividend of $0.154 per share, translating into a lucrative yield of over 7.5%. It benefits from its solid tenant base and industry-leading occupancy level of 98%, which drives its strong cash flows. Notably, 65% of its rent is generated through reliable and essential service providers like top retailers, including Walmart, Loblaw, and Dollarama.
Thanks to its fixed-rate debt, SmartCentres is less susceptible to rising interest rates, which is positive considering the current economic environment. Furthermore, its robust development pipeline and focus on expanding recurring income initiatives augur well for growth.
Overall, its solid tenant base, growing cash flows, and high yield make SmartCentres a top investment for earning passive income.
Bottom line
These REITs are attractive investments to earn regular passive income. However, as dividend payouts are not guaranteed, investors must focus on diversifying their portfolios rather than investing all their money in one or two stocks.
