Better Dividend Stock for Passive Income: NorthWest REIT or Nexus REIT?

These two dividend stocks offer passive income above 8%, but which is the better (and safer) buy on the TSX today?

Amy Legate-Wolfe

Author Bio Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Her work can also be found at Canada's National Observer, where she writes on the business side of climate action. Before joining Motley Fool Canada, Amy wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Social Media Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published December 8, 2023 9:00 pm EST

Canadian investors continue to focus on high-yield dividend stocks for passive income these days. And as well, they should! This can be a great benefit, as we continue to hope the market is on the recovery. But investors need to be careful. Dividend stocks can look great until they cut their dividend. Or worse, see shares plummet to the floor.

That’s why today we’re going to look at two strong, high-yielding dividend options. Which is better: NorthWest Healthcare Properties REIT (TSX:NWH.UN) or Nexus Industrial REIT (TSX: NXR.UN)?

data analyze research — Image source: Getty Images

NorthWest

NorthWest stock has long been a high-yielding dividend payer that many investors got into during the pandemic. The company saw its share price surge as it continued to see investment in the healthcare sector. What’s more, it used its capital to expand on a global scale. The real estate investment trust (REIT) has an international portfolio to be admired.

However, it seems some of that capital should have gone towards maintaining its dividend. NorthWest stock has since seen share prices plummet, as many investors got away from healthcare stocks, looking to make returns instead.

Now, NorthWest stock has shares at about a third of where they were at their peak. Plus, it had to cut its dividend by more than half from $0.80 to $0.36 per share annually. Now, it’s selling off assets to continue feeding its bottom line.

The big question is whether or not the worst is over and if now is the time to get back in. That could be, given its trailing price-to-earnings ratio (P/E) is at 7.42 and it’s price-to-sales ratio is 2.19. However, the company’s payout ratio is still absurdly high at 299%, with a debt-to-equity (D/E) ratio of 123%. So, there is certainly work to be done, even with an 8% dividend yield.

Nexus stock

As for Nexus stock, it’s gone through a rough patch as well. The industrial property holder has seen shares drop lower and lower as it continues to try and make it out of this high interest rate and inflation environment. The company has seen its fair value shrink amongst all these high-priced environments as well as seeing costs rise.

Even so, I believe that the future is a bit more bright for Nexus REIT. That’s because of the industry of industrial properties in general. These are low-cost properties that are sorely needed in Canada and around the world.

We need these properties to store, ship, and assemble the products we now demand practically instantaneously. Nexus stock has seen its shares start to recover as the market has done so as well because of this as well as earnings. Most recently, it was actually acquiring properties rather than selling them, seeing operating income rise and occupancy remain stable at 97%.

And the stock certainly holds value. Nexus currently trades at 4.26 times earnings as of writing, with shares down 26% in the last year. Its D/E ratio needs work at 129%, but its payout ratio is very healthy at 36%. In fact, there could be a rise in the future for the 8.57% dividend yield.

Therefore, it’s pretty obvious that of the two, I would go with Nexus stock on the TSX today. If you’re looking for stable passive income in this volatile environment, it’s certainly the one I would consider.