The Top Canadian REITs to Buy in September 2023

These two top Canadian REITs are highly reliable and offer significant long-term potential, making them some of the best to buy now.

Daniel Da Costa

Daniel joined the Motley Fool Canada team in 2019 with years of experience in banking and investing. Growing up the son of a proprietary stock trader and educator, Daniel’s always found joy in helping Canadians to improve their financial situations. With the Motley Fool, Daniel sees an even more rewarding way to impact Canadians positively. A student and great admirer of Warren Buffett, he’s always looking for investments offering growth at a reasonable price. Outside of finance, Daniel enjoys spending his time with family, sailing, and watching Formula One.

Published September 1, 2023 1:15 pm EDT

Many of the best investments in Canada, especially for long-term investors, are high-quality stocks in the real estate sector. Top Canadian real estate investment trusts (REITs) are some of the best to buy now due to the fact that they can be highly defensive, generate attractive passive income, and have significant long-term growth potential.

With both the stock market and economic environments being highly uncertain today and full of risk, buying a reliable stock that can earn you passive income and offer steady long-term growth potential is certainly ideal.

With that in mind, if you’re looking for top Canadian REITs to buy in September 2023, here are two top picks to consider: one for income and one for significant growth potential.

A top Canadian REIT to buy for passive income

REITs are some of the best stocks to buy for passive income. The majority of REITs are highly defensive, and they are constantly generating tonnes of cash flow, so they typically return cash to investors every month.

While there are several top Canadian REITs to buy, especially if you’re a passive-income seeker, one of the very best — and one on the Canadian Dividend Aristocrats list — is CT REIT (TSX:CRT.UN).

CT REIT is a retail REIT that’s majority owner and largest tenant is Canadian Tire. Typically, retail REITs aren’t as defensive as residential REITs, for example, and many retail REITs struggled through the pandemic, as shutdowns impacted their tenants’ businesses and ability to pay their rent.

Furthermore, with many retailers closing brick-and-mortar locations and adopting an e-commerce strategy, retail REITs have faced constant pressure in the current environment.

With CT REIT, though, because Canadian Tire is its largest tenant and accounts for roughly 90% of the revenue CT REIT earns, the stock is much safer than essentially all of its competitors.

This makes it an ideal REIT to buy for dividend income, especially since it’s reliable and its current distribution has a yield of more than 6.1%.

Plus, on top of the attractive yield it offers investors, CT REIT is constantly increasing its distribution each year as it grows its operations. This leads to more capital gains for investors in addition to a growing distribution.

In fact, CT REIT’s dividend-growth streak is now up to 10 years, giving it the fifth-longest streak of any Canadian REIT and the longest streak of any retail REIT. Furthermore, in just the last five years, it’s increased its distribution by over 18%.

Therefore, while CT REIT trades at the bottom of its 52-week range and offers a distribution with a yield above 6%, it’s certainly one of the top Canadian REITs to buy now.

An excellent REIT to buy for long-term growth potential

While CT REIT is one of the top Canadian REITs to buy for passive income, if you’re looking for a REIT that can offer significant capital gains potential, I’d recommend you consider InterRent REIT (TSX:IIP.UN).

InterRent is a residential REIT focused on rapid growth that owns properties in Ontario, Quebec, and B.C.

The REIT does return cash to investors through its distribution. However, the distribution only offers a yield right now of roughly 2.9%. That’s one of the lower yields you’ll find in the real estate sector, especially for residential REITs.

However, that’s not all bad news. The reason InterRent returns less cash to investors than some of its competitors is that it retains most of its capital to continue investing in growth.

It’s also worth mentioning that even with a lower yield than many competitors, InterRent is still on the Canadian Dividend Aristocrats list. And with a distribution-growth streak of 11 years, it’s tied for the second-longest streak of any Canadian REIT.

The real reason to buy InterRent, though, is for its impressive growth potential. InterRent is constantly looking at acquiring more properties to expand its portfolio or investing in updating its existing properties to increase the value of these assets as well as the cash flow that they generate.

Therefore, while InterRent trades at a forward price-to-adjusted funds from operations ratio of just 24.5 times, below its five-year average of 31.5 times, it’s certainly one of the top Canadian REITs to buy in September 2023 and hold for the long haul.