2 Top REITs to Buy for Passive Income in 2024

Canadian investors seeking monthly passive-income payouts may check out Granite REIT (TSX:GRT.UN) and another resilient Canadian REIT paying sustainable distributions before their lucrative yields go away.

| More on:

Image source: Getty Images

Investors looking to earn more passive income in their Tax-Free Savings Accounts (TFSAs) and retirement portfolios may load up on beaten-down publicly traded real estate assets in 2024 before the Canadian property market turns a corner. Canadian REITs (real estate investment trusts) pay monthly dividend distributions, and selected high-quality trusts have yields that are too attractive to pass up right now.

Why REITs now?

Canadian REITs provide easy access to commercial real estate ownership, with professional management handling the daily hustles of directly managing rental properties. Recent interest rate hikes impacted REIT values, but some, like CT Real Estate Investment Trust (TSX:CRT.UN) and Granite Real Estate Investment Trust (TSX:GRT.UN), have low debt, strong occupancy rates, and growing rental income. The two REITs may continue to pay some of the industry’s safest distributions while investors wait for recoveries in property value.

Let’s take a closer look.

CT REIT: High occupancy, strong tenant, and safe distribution

CT REIT is a $1.5 billion retail property trust that owns a portfolio of more than 370 properties comprising about 30.9 million square feet of gross leasable area located across Canada. The REIT boasts a nearly perfect occupancy rate of 99.1% going into 2024, thanks to its steadily expanding key tenant, Canadian Tire, which occupies 91.3% of the trust’s properties (on an annualized rent basis) with a weighted average lease term of 8.6 years.

The REIT’s close relationship with its former parent, Canadian Tire, is essential for growth. While other retail REITs are cutting back on development activity because higher interest costs made new development activities less profitable, CT REIT’s new developments added almost 900,000 square feet of gross leasable area (GLA) to its portfolio last year. The trust had 571,000 more GLA under development going into 2024. The developments were 98.8% pre-leased. The relationship with Canadian Tire is accretive to growth and profitable as well.

Most noteworthy, CT REIT maintains a stellar balance sheet with a debt ratio of 41.4% going into 2024, an average interest rate of 4.07%, and an average debt maturity of 5.4 years. Its investment-grade balance sheet is a fortress for income investors seeking shelter. The passive-income play is well positioned to survive a high interest rate environment without cutting its distribution.

CT REIT stock pays monthly distributions that yield 6.6% annually. The REIT has religiously raised its distribution every year since going public a decade ago. Its payout for 2023 comprised a safe 73.4% of its adjusted funds from operations (AFFO) — a significant improvement from 74.5% in 2022. The distribution is well covered by recurring cash flow and may grow again in 2024 and beyond.

Granite REIT retains rent growth potential

The industrial real estate property market has cooled off in 2024, and vacancy rates are normalizing as the market absorbs new supply growth. However, there remain huge pockets of opportunity, and Granite REIT is one of the best industrial property plays for passive income and future capital gains right now.

The industrial REIT holds a geographically diversified portfolio of 143 commercial properties, comprising 62.9 million square feet of GLA, located in Canada, the United States, and Europe. The portfolio has grown significantly from 128 properties and 59.4 million square feet of GLA at the end of 2022.

Granite REIT averaged rental rate spreads of 24% over expiring rents last year. Following strong increases in rentals on industrial properties over the past few years, Granite REIT’s in-place rents remain below current market rates in some markets. The trust may report positive same-property net operating income growth rates as it renews leases at higher rates this year.

Meanwhile, the REIT’s low debt leverage ratio of 33% could make peers envious. The trust’s AFFO payout rate improved to 70% during the fourth quarter of 2023 from 75% during the prior year’s quarter. Management expects AFFO to grow by 3-7% this year, providing room for a potential distribution increase in the near future.

Although portfolio occupancy rates slightly dipped to 95% at year-end last year, the trust had completed a major development in 2023. Leasing efforts in 2024 should help secure the REIT’s distributions well into the future.

Granite REIT pays monthly distributions that yield 4.8% annually in passive income.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Brian Paradza has no position in any of the stocks mentioned. The Motley Fool recommends Granite Real Estate Investment Trust. The Motley Fool has a disclosure policy.

More on Dividend Stocks

a man relaxes with his feet on a pile of books
Dividend Stocks

Is Fairfax Financial Stock a Buy for its 1.1% Dividend Yield?

Is Fairfax worth adding to your portfolio?

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

How to Use Your TFSA to Earn $5,000 Per Year in Tax-Free Income

Adding these two top dividend stocks could help you create a reliable income-generating portfolio within your TFSA.

Read more »

woman looks out at horizon
Dividend Stocks

Is Manulife Stock a Buy, Sell, or Hold for 2025?

Manulife stock (TSX:MFC) has had one heck of a year. But is that set to continue in 2025 and beyond?

Read more »

Canadian dollars in a magnifying glass
Dividend Stocks

Retirees: Expect a 2.7% CPP Inflation Boost Next Year

A 2.7% inflation bump means more nominal income. Investing in ETFs like the BMO Canadian Dividend ETF (TSX:ZDV) provides a…

Read more »

up arrow on wooden blocks
Dividend Stocks

3 Blue-Chip Dividend Stocks Every Canadian Should Own

These are large-cap TSX stocks with fundamentally strong businesses and growing earnings bases that support their distributions.

Read more »

Dividend Stocks

Is Granite REIT stock a buy for its 4.3% dividend yield?

Granite REIT stock appears to be a good buy for monthly income and long-term price appreciation at current levels.

Read more »

Muscles Drawn On Black board
Dividend Stocks

Canadian Defensive Stocks to Buy Now for Stability

Defensive stocks are some of the best buys for long-term holders, though without the flash. Which is why now is…

Read more »

Dividend Stocks

High Yields Over 6%? Top 2 REITs to Buy in December

Consider H&R REIT (TSX:HR.UN) and another top REIT to land a generous dividend yield close to 6%.

Read more »