Most investors holding dividend stocks receive quarterly income streams. The average yield of made-in-Canada dividends is 4.8%. According to RBC Global Asset Management, dividends from the Canadian stock market accounted for 30% of total returns over the past 30 years.
If you want to receive more passive income, some TSX companies have higher dividend yields. Chartwell Retirement Residences (TSX:CSH.UN) is an attractive option for dividend earners. Besides the hefty 6.62% dividend yield, the real estate investment trust (REIT) pays monthly cash dividends.
Protection from inflation
The same RBC report said the real estate sector had the highest contribution to TSX dividends in 2022 ($16 per $100). Canadian REITs, including Chartwell, are great income sources and provide real estate investors with an alternative to purchasing physical properties.
Furthermore, dividends increase purchasing power during normal times and preserve it when inflation is high. Chartwell’s dividend offer is higher than the 3.6% rate in May 2023, and economists forecast a lower 3.4% headline inflation for June.
On July 12, 2023, the Bank of Canada raised its benchmark interest rate for the third time this year. The policymakers also revised the forecast saying inflation won’t drop to their 2% target until mid-2025, not earlier. BOC Governor Tiff Macklem said it’s too early to discuss potential rate cuts.
Market analysts say REITs could suffer from rising interest rates and see their stocks falling. Fortunately, Chartwell is an exception thus far in 2023. At $9.35 per share, current investors enjoy a market-beating 14.5% year-to-date return. The $2.3 billion REIT is Canada’s largest provider of seniors’ housing.
Occupancy recovery mode
Chartwell experienced a severe business reversal during the pandemic and is not immune to stubborn inflation, the latest headwind. Management’s recourse to offset inflation’s impact is to charge residents higher rents (historic high) and service fees.
In 2022, resident revenue increased 5.2% to $661 million versus 2021, while net income jumped 389% year over year to $49.5 million. Notably, development and acquisition activities slowed considerably due to pandemic-induced uncertainties and rising construction costs.
Chartwell’s CEO, Vlad Volodarski, said, “I believe that 2022 marked a turning point in our recovery from the prolonged pandemic.” In Q1 2023, net loss reached $9.2 million, although the occupancy rate improved to 78.5% from 77.1% in Q1 2022. Volodarski adds that Chartwell is in occupancy recovery mode but expects strong rental and service rates and occupancy growth soon.
Business Outlook
Chartwell maintains a positive long-term outlook as it banks on the unprecedented senior population growth. The growth forecast is between 4% and 5% per annum over the next 10 years. Other factors contributing to business growth and declining vacancies are the shortage of long-term care (LTC) beds and increasing demand for retirement accommodation.
High construction and borrowing costs are tailwinds for the retirement living operator. The projected fewer new retirement residence openings in the next two to four years should support occupancy growth in Chartwell’s existing properties.
Dividend safety
Prospective investors might raise concerns about dividend safety. There are no red flags for Chartwell, as dividends have been stable and growing in the past 10 years. The high-yield and monthly payouts are compelling reasons to invest in the outperforming REIT.
