Canada’s booming real estate market saw a correction in the last two years. The Canadian housing bubble pulled housing prices down 18% from their March 2022 peak. The near-zero interest rates made cheap finance available to property buyers. The industry had not experienced high interest rates in over a decade. So, when the interest rate hike began in April 2022, property prices descended. All REIT unit prices fell as the value of their property portfolio fell. However, Slate Grocery REIT (TSX:SGR.UN) survived the storm and gave resilient returns.
When should you consider investing in Slate Grocery REIT?
Slate Grocery REIT is a resilient dividend stock that pays monthly distributions and grows at an average annual rate of 3%. The REIT’s resilience comes from the nature of its tenant’s business, which is groceries.
Grocery stores tend to do well in a downturn, as you will buy grocery items even when inflation is high. Grocers don’t generate high profit margins but are sticky and give you assured rent. Think about it – how often do you see a grocery store close? While 89% of grocery sales still happen at stores, e-commerce has converted grocery stores into fulfillment centres. Moreover, grocery stores attract other retail stores because of the grocery footfall in that area.
Slate Grocery REIT is listed on the TSX, but it manages 117 properties in the United States. Limited new construction helps the REIT to grow its rent. As it earns its rental income in US dollars, the Canadian dollar distribution varies depending on the exchange rate.
This REIT is a good investment to protect your portfolio from a downturn and get a stable source of inflation-adjusted passive income. If you are nearing retirement and want a substitute for your active income to pay for daily expenses, you could consider investing in Slate Grocery REIT.
If you invested $10,000 in Slate Grocery REIT in 2014…
The REIT’s historical returns can give you a fair idea of the expected monthly return. Slate Grocery REIT started trading on the TSX in April 2014 at $14.50 per share. If you invested a little over $10,000 in this REIT, you could have purchased 690 units of Slate Grocery REIT. As it is an income stock, don’t expect capital appreciation.
I pulled out the annual distributions the REIT gave in Canadian dollars. Just plug in 690 shares, and you have your annual passive income and how that income grew over the last 10 years.
| Year | Slate Grocery REIT Annual Dividend Per Unit | Dividend Income on 60 Units |
| 2023 | $1.159 | $799.71 |
| 2022 | $1.122 | $774.15 |
| 2021 | $1.073 | $740.51 |
| 2020 | $1.149 | $793.00 |
| 2019 | $1.130 | $779.42 |
| 2018 | $1.086 | $749.64 |
| 2017 | $1.048 | $723.12 |
| 2016 | $1.029 | $709.80 |
| 2015 | $0.980 | $676.48 |
| 2014 | $0.589 | $406.41 |
| Total | $7,152.26 |
A $10,000 investment would have fetched you $406 in annual passive income in 2014. As the REIT kept growing its distributions and the US dollar strengthened, the passive income grew to almost $800 in 2023. If you accumulated all the distributions, you would have $7,152. The $10,000 principal investment would have been reduced to $8,411 as the stock price fell amid the real estate crisis.
However, the $1,600 dip in the initial investment will be recovered in the next two years as the US Fed slashes interest rates and triggers a recovery in property prices.
How to invest in income stocks
The returns from Slate Grocery REIT give you an idea of how to build your passive income portfolio. Slate Grocery REIT stock price is at a sweet spot as the dip in real estate stocks inflated its distribution yield to 9.5%. Such a high yield is difficult to find in a resilient stock. If you have a lump sum amount to invest, consider investing it in this REIT and lock in a 9.5% yield.
If you have 10-12 years to retire, you can consider investing $500 monthly toward your income portfolio. Consider diversifying your portfolio across sectors, such as real estate, energy, banks, and telecom. The TSX has a rich collection of dividend aristocrats like BCE and Telus Corporation that grow their dividends at a 5-7% annual growth rate.
