Investors seeking high and reliable yields could consider investing in dividend-paying stocks backed by fundamentally strong businesses. SmartCentres Real Estate Investment Trust (TSX:SRU.UN) is one among them. While the high inflation and elevated interest rate environment has taken a toll on the financial performance of REITs (real estate investment trusts), SmartCentres continues to enhance its shareholders’ returns through regular monthly dividend distributions. Furthermore, the REIT offers a compelling yield of 8.4% (based on its closing price of $22.03 on October 20).
With this backdrop, let’s look at the factors that make SmartCentres a reliable investment choice for those seeking a dependable and high yield.
A top monthly income stock
SmartCentres is Canada’s leading fully integrated REIT. Investors should note that REITs are obligated to distribute a significant portion of their earnings, resulting in a notably high payout ratio, making them a preferred investment option for those seeking regular income.
As for SmartCentres, it also sports a very high payout ratio (over 90%). The firm’s payouts are backed by its resilient real estate assets that drive its adjusted funds from operations (AFFO) and support its dividend distributions in all market conditions. The company owns 189 properties, including 155 retail properties, located across top communities in the country (as of June 30, 2023). Moreover, the firm has 34.9 million square feet of gross leasable retail and office area.
The REIT has a stellar history of paying and growing its monthly cash distributions. Currently, it pays a dividend of about $0.154 a share per month.
Factors supporting SmartCentres bull case
SmartCentres benefits from its top-quality tenant base. It’s worth highlighting that 65% of its tenants offer essential services. Further, an impressive 95% of its tenants are established national or regional retailers. Investors should note that approximately a quarter of its revenue is generated through Walmart. Additionally, SmartCentres boasts other prominent tenants, such as Loblaw, Metro, Canadian Tire, and Dollarama, among others. This top-tier tenant base contributes to the stability of its earnings and plays a pivotal role in maintaining consistently high occupancy rates.
SmartCentres has an industry-leading occupancy rate of about 98.2%, with an average lease term of approximately 4.2 years. High occupancy rate and visibility over lease term allow SmartCentres to generate solid AFFO, which enables it to grow its income-producing real estate portfolio and drives dividend distributions.
The strength in its recurring retail income, a growing portfolio of mixed-use properties, strong balance sheet, and a high occupancy rate suggest that SmartCentres REIT could deliver solid financials and enhance its shareholders’ returns through regular dividend payouts. Moreover, SmartCentres REIT is well-prepared to easily navigate the higher interest rate environment, as most of the company’s debt (about 83%) is fixed, making it relatively immune to the central bank’s tight monetary policy.
Bottom line
SmartCentres Real Estate Investment Trust is a dependable stock to earn monthly income. Moreover, its high yield makes it a compelling stock for passive-income seekers. However, investors should not put all of their money in one dividend stock and focus on diversifying their portfolio to reduce risk.
