Real estate investing can be an entirely passive endeavour via stock investing. A top real estate stock that is a Canadian Dividend Aristocrat that increased its dividend at the highest rate in the last year was FirstService (TSX:FSV). Specifically, in February, it increased its quarterly dividend by 10.8%.
It has outperformed the Canadian real estate sector (using iShares S&P/TSX Capped REIT Index ETF as a proxy) and the Canadian stock market (using iShares S&P/TSX 60 Index ETF as a proxy) over the last five years, as shown in the graph below. So, it’s worth a closer look.
FSV, XRE, and XIU Total Return Level data by YCharts
FirstService provides real estate services in North America, including managing residential communities. Additionally, it provides essential property services through individually branded franchise systems and company-owned operations. In most years over the last decade, FirstService achieved returns on equity of at least 14%.
Although the year-to-date interest expense more than doubled for the company, it still came out with impressive results. In the period, it increased revenues by 19% to US$3,255 million and it witnessed a 25% jump in its adjusted earnings before interest, taxes, depreciation, and amortization (a cash flow proxy) to US$312.4 million. Ultimately, it watched its adjusted earnings per share increase by 18% to $3.56. This is a very strong growth rate in today’s higher interest rate environment.
In the last reported quarter in late October, Scott Patterson, chief executive officer of FirstService, sounded very positive about the company: “We are pleased to report another very good quarter on the back of continued impressive organic growth across our service lines. With our financial results thus far in 2023, we are well-positioned to deliver on our expectations of strong performance for the full year.”
FirstService stock’s dividend yield is less than 1%. However, as the company has demonstrated, investors can consider buying it for growth. At $215 and change per share, analysts find the quality real estate stock to be fairly valued. Long-term investors can nibble some shares here.
Get more income from Canadian REITs
For more income, investors can turn to Canadian real estate investment trusts (REITs), such as Dream Industrial REIT (TSX:DIR.UN). The Canadian REIT is in a good space, invested in a diversified portfolio of industrial properties in Canada, the United States, and Europe. It has 322 properties across 70.6 million square feet of gross leasable area with a high occupancy of north of 97%.
In September, Dream Industrial REIT noted that the market rent versus in-place rent is a difference of 37%, which means that it has the potential of strong increases in its rental income for new leases. Year to date, while it increased its net rental income by 21% to $249 million, it increased its funds from operations (FFO) per unit by 12% to $0.74, which equated to a sustainable FFO payout ratio of about 70%.
Dream Industrial REIT maintains an investment-grade balance sheet with a strong interest coverage ratio of 6.7 times. After a pullback, at $12.45 per unit, it trades at a good discount of 26% from its net asset value per unit. Investors can buy and wait for price appreciation while generating generous income with a yield of 5.6% paid out in monthly cash distributions. Analysts have a slightly more conservative 12-month target of $16.07 for the stock, which represents a discount of close to 23%.