If you like monthly dividend income, real estate investment trust (REIT) stocks are a great place to look. Most commercial properties have multi-year leases that provide relatively foreseeable cash flows. Landlords charge rents monthly. As a result, many REITs distribute their excess cash flows right back to shareholders monthly.
Right now, real estate might seem like a tough place to invest. Interest rates have risen drastically. The market has been worrying that the spread between rents and debt service will compress.
Yet stock valuations in the sector have significantly declined, dividend yields have risen, and many REITs (with very high-quality assets) trade at a large discount to their net asset value (NAV) (you can consider this as appraised private market value).
If you don’t mind being a bit contrarian, you can buy portfolios of high-quality assets at attractive valuations and high yields. Here are three REITs to consider looking at for monthly income today.
A safe and steady REIT for monthly income
Granite REIT (TSX:GRT.UN) owns a portfolio of 137 institutional-quality industrial, manufacturing, and logistics properties across Canada, the United States, and Europe. Its roster is made of credit-grade tenants like Magna, Amazon.com, and Restoration Hardware. It has +96% occupancy right now.
Its weighted average lease term is 6.5 years. This means it has a clear outlook on the rents and cash flows it will collect. Strong demand for industrial space has helped drive rents up across the sector. Consequently, adjusted funds from operation (AFFO) per unit have been growing by the high single digits in the past several years.
Today, Granite stock yields 4.4% today. It has a record of growing that dividend for 12 consecutive years. The REIT has a conservative balance sheet. Combine that with a solid development pipeline, and the REIT should sustain solid, steady dividend growth in the years ahead.
A bargain-priced REIT with a big yield
First Capital REIT (TSX:FCR.UN) owns 22 million square feet of retail space across Canada’s urban core. The REIT focuses largely on essential goods retailers like grocery, medical, pharmacy, banking, liquor, and value-based merchandise providers. In fact, over 70% of rents come from essential service providers. It has 96% occupancy.
Given its central locations, First Capital has been able to see solid low-teens leasing spreads on new leases. In its recent quarter, funds from operation (FFO) per unit increased 7.6% to $0.30 per share. The company has considerable excess/under-utilized land, so it sees considerable upside from redeveloping its portfolio.
Right now, the company trades at a 40% discount to its NAV. It also has a substantial 6% dividend yield. Recently, some activist investors have gotten involved, so incentives are high to unlock value for shareholders.
A Canadian real estate stock with exposure to U.S. growth markets
BSR REIT (TSX:HOM.U) is a great stock if you want to geographically diversify your monthly income stream. It operates a portfolio of 31 garden-style, multi-family properties in Arkansas, Oklahoma, and Texas. It has 95% occupancy across its portfolio.
These states (especially Texas) have some of the highest population/economic growth in North America. That has been a significant tailwind for BSR. High demand for its properties has helped elevate excellent high-single-digit organic rental rate growth.
Despite its strong market, operational, and financial fundamentals, this REIT trades at a 40% discount to its NAV. Its debt is locked in for the next five years at attractive rates. It has been using excess capital to buy back stock.
BSR stock earns an attractive 4.1% annual dividend yield that it pays monthly. For a very well-managed REIT trading for pennies on the dollar, BSR is a great buy for passive-income investors today.
