Quality stocks that pay out safe dividends could be a great option for investors looking for passive income. Buying stocks that pay out monthly dividends is convenient to help you plan your monthly income.
Canadian real estate investment trusts (REITs) tend to pay out monthly cash distributions. So, it is one area that you should definitely explore if you want to boost your monthly income. Besides, it could add diversification for your portfolio as a component of passive real estate investing.
One Canadian REIT you should have on your radar is Granite REIT (TSX:GRT.UN). The solid dividend stock pays out monthly cash distributions and is expected to continue growing its dividend.
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The business
Granite REIT owns 143 properties totaling 62.9 million square feet across five countries — Canada, the United States, Germany, the Netherlands, and Austria. 137 of its properties generate income, and it has six development properties or land that can contribute to future growth.
The industrial REIT has a diversified portfolio that enjoys a high occupancy of approximately 96.3% and a weighted average lease term of roughly 6.5 years. Notably, it has a meaningful lease expiry coming up: 6.5% of annualized revenue in 2024, 8.2% in 2025, 10.1% in 2026, 8.8% in 2027, and 12.8% in 2028. For now, management sees stable industrial real estate fundamentals and positive re-leasing spreads across all regions it operates in.
Investors should note that the REIT’s top 10 tenants contribute to 47% of its annualized revenue. Particularly, its top tenant, Magna International contributes a whopping 26%. Thankfully, although Magna’s profits are sensitive to economic booms and busts, it has a quality S&P credit rating of A-. The rest of its top tenants mostly contribute approximately 2% of its annualized revenue.
Making $100/month in passive income
Affected by higher interest rates since 2022, Granite stock has fallen about 23%. Importantly, at $74.69 per unit at writing, the analyst consensus 12-month price target represents a discount of almost 22%. So, it could be a decent buy at current levels.
At this quotation, the stock offers a cash distribution yield of close to 4.3%. Furthermore, the REIT has a track record of increasing its cash distributions. For reference, its 10-year cash-distribution growth rate is 4.5%. To get $100 per month in pre-tax passive income today, interested investors can buy 375 units of the stock.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| GRT.UN | $74.69 | 375 | $0.2667 | $1,200 | 12 |
Income tax on Canadian REIT cash distributions
Canadian REITs pay out cash distributions that are like dividends but are taxed differently. In non-registered accounts, the return of the capital portion of the distribution reduces the cost base. The return of capital is tax deferred until unitholders sell or their adjusted cost base turns negative.
REIT distributions can also contain other income, capital gains, and foreign non-business income. Other income and foreign non-business income are taxed at your marginal tax rate, while half of your capital gains are taxed at your marginal tax rate. If you hold Canadian REITs inside tax-advantaged accounts like a Tax-Free Savings Account, Registered Retirement Savings Plan, Registered Disability Savings Plan, Registered Education Savings Plan, or First Home Savings Account, you won’t need to worry about the source of income other than foreign income which may have foreign withholding tax. When unsure of where best to hold REIT units, seek advice from a tax professional.
