Real Estate Investment Trusts, or REITs, are an investor favourite when it comes to dividends. They typically offer relatively generous yields, making them ideal for developing a healthy passive income stream. However, if investors wish to combine decent yields with long-term dividend sustainability, the pool shrinks to a relatively smaller size.
An industrial REIT
Nexus Industrial REIT (TSX: NXR.UN) has a diverse commercial portfolio, including retail and office properties, though the industrial assets dominate the portfolio – 84 properties compared to 17 retail and 13 office properties. They are spread out over multiple provinces, though Quebec, Ontario, and Alberta have the highest share. The industrial property mix includes logistics and flex properties.
Currently, the REIT can be counted among undervalued stocks, thanks to a low price-to-earnings and price-to-book ratio. This valuation results from a stock discount that also pushed the yield up to an attractive level of 7.5%.
It’s a trustworthy pick for several reasons but primarily for its payout ratio history. The REIT has maintained a healthy payout ratio since 2016 and seems capable of offering its investors healthy and financially stable dividends in the future as well.
A grocery REIT
Grocery stores are among the safest retail real estate property segments due to the evergreen nature of the underlying business. This makes Slate Grocery REIT (TSX: SGR.UN) a healthy choice within the REIT pool, but it offers an additional layer of safety – a completely US-based business. This makes it safer than local REITs susceptible to TSX and local market headwinds.
All of Slate Grocery’s properties are anchored by grocery businesses, and the tenants include many household names. But the underlying property type isn’t the only factor that makes it a trustworthy dividend payer.
The REIT has grown its payouts multiple times in the past (though it has recently stopped the practice), and the payout ratios have been steady for a long time. A healthy 6.3% yield is the cherry on top.
A retail and mixed-use REIT
While it may not be counted among the blue-chip stocks, SmartCentres Real Estate Investment Trust (TSX: SRU.UN) is a giant among the REITs. It’s still one of the top players in the retail sector, and a significant segment of the portfolio is anchored by the global retail giant Walmart. This makes its portfolio more stable and safe compared to other retail REITs.
However, the REIT is now pivoting to mixed-use properties/communities. This costly reorientation may pave the way for the long-term stability and success of the REIT. It used to be an aristocrat, and even though it hasn’t raised its payouts in a while, the dividends are stable and reliable. They may experience occasional/routine hikes in the future. The current yield of 7.3% is quite attractive as well.
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Foolish takeaway
The three REITs can help you start and sustain a healthy passive income stream. The current yields result from a sector-wide slump, but many REITs are quickly turning things around, so the yields may not remain as attractive forever. You can buy now to lock in a healthy yield or wait for another sector-wide or individual discount to buy.
