Are you looking for investments that can provide you with passive income and little management on your part? Then, a good start would be to select dividend stocks that don’t provide the highest yields. Typically, stocks that provide the highest yields compared to their peers are a hint that they are riskier. Particularly, Canadian real estate investment trusts (REITs) are good places to seek passive income from real estate. It’s as passive as it can get!
Notably, one factor that has been pressuring stocks of REITs is higher interest rates since 2022. Here are a couple of Canadian REITs that have relatively low debt levels in their industries. To be sure, I checked that they don’t have the highest cash distribution yields among their peers. When we enter a new interest rate cut cycle — whenever it might come, these stocks should see higher prices.
At the end of the month, Granite REIT (TSX:GRT.UN) will be reporting its fourth-quarter (Q4) and full-year 2023 results. It has a diversified industrial real estate portfolio across 62.9 million square feet in 143 properties located in five countries — Canada, the United States, Germany, the Netherlands, and Austria. (137 properties produce income, while the remaining six are development properties or land.) The industry is healthy and growing thanks to the continued growth in e-commerce and the use of traditional distribution. Furthermore, Granite REIT is able to maintain a high occupancy rate of about 96%.
Thanks to higher interest rates, the stock has corrected about 29% from its high in 2021. At $73.99 per unit at writing, it trades at a reasonable valuation of about 14.9 times funds from operations. In fact, the analyst consensus suggests it trades at a discount of approximately 15%. It also offers a nice yield of almost 4.5%, paid out as monthly cash distributions.
Granite REIT tends to increase its cash distribution over time, which it’s set up to continue with a sustainable payout ratio and growth. For your reference, its three-year cash-distribution growth rate is 3.3%.
For RioCan REIT’s (TSX:REI.UN) latest results, investors can look forward to it reporting its fourth-quarter and full-year results on Valentine’s Day. RioCan’s properties are located in high-demand and growing markets. Additionally, they’re primarily grocery-anchored, open-air centres, or mixed-used urban centres.
At $18.51 per unit at writing, the retail REIT offers good income and value. It yields 5.8%, paid out as monthly cash distributions. It also trades at about 10.4 times funds from operations. If it executes its development pipeline well, coupled with lower interest rates potentially over the next few years, the stock could deliver strong total returns of north of 13% per year. Analysts think the REIT trades at a discount of approximately 13%.
RioCan REIT enjoys an investment-grade S&P credit rating of BBB. Its payout ratio is also relatively low, partly due to its distribution cut in 2021. Since 2022, RioCan has begun raising its cash distribution. Given its stronger position today, its cash distribution appears to be safe.