The 3 Top Canadian REITs to Buy in May 2024

These REITs in strong sectors are well-positioned to deliver passive income through regular dividend payments.

edit Real Estate Investment Trust REIT on double exsposure business background.

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Canadian real estate investment trusts (REIT) have long been considered a strong long-term option for creating passive income. After all, REITs must payout 90% of net income to shareholders, and that usually comes in the form of dividends. This can therefore be a strong strategy for investors looking for passive income through regular dividend payments.

The issue is that if these companies aren’t making a lot of net income, then those dividend payments can be smaller and smaller. That’s why the sector matters. Investors will want to consider not just a strong REIT stock, but the sector in general.  So let’s look at three sectors with corresponding REITs that could set up investors for strong passive income.

Industrial REITs

First off, industrial REITs focus on properties like warehouses, distribution centres, and manufacturing facilities. The growth of e-commerce has significantly increased the demand for logistics and warehousing space. Online shopping requires extensive logistics and distribution networks. Furthermore, companies are investing in more localized supply chains, increasing demand for industrial space.

That’s why I like a company such as Granite REIT (TSX:GRT.UN). The company boasts a robust portfolio of high-quality properties. It focuses on industrial, warehouse, and logistics properties, which are critical components of modern supply chains, especially with the rise of e-commerce.

The dividend stock is well known for long-term leases with high-credit tenants, many of which are involved in essential industries. This results in stable and predictable cash flows. So with a dividend yield of 4.68% and stable 95% payout ratio, it’s a strong dividend stock to consider.

Healthcare REITs

Another strong sector for investors to consider are healthcare REITs. Healthcare REITs invest in properties like hospitals, nursing facilities, and medical offices. The area benefits from the increasing demand for healthcare services as the population ages. Plus, long-term leases with healthcare providers ensure stable and reliable income streams.

Therefore, another dividend stock investors will want to consider is NorthWest Healthcare Properties REIT (TSX:NWH.UN). NorthWest REIT benefits from the specialized nature of healthcare properties. Yet it is still diversified with exposure around the world to a variety of healthcare properties.

Yet these properties all offer one thing: long-term lease agreements. The company currently holds a 13.3-year average lease agreement. What’s more, the company uses long-term, triple-net leases, where tenants are responsible for property taxes, insurance, and maintenance. This lease structure provides predictable and stable income, reduces operating costs, and minimizes financial risk for the REIT. So with a dividend yield of 6.9% and a rising share price, it’s another strong dividend stock to consider today.

Grocery-anchored REIT

Finally, grocery-anchored REITs are another area in which investors will want to consider giving attention. While traditional retail has faced challenges, this segment remains strong. It provides an essential service that has shown resilience even in the toughest times.

One dividend stock then to consider in this case is Slate Grocery REIT (TSX:SGR.UN). Slate stock primarily invests in grocery-anchored retail properties. These properties typically feature grocery stores as anchor tenants, which tend to be more resilient to economic downturns compared to other retail sectors.

Again, the company typically enters into long-term leases with its tenants, including major grocery store chains. These leases often include contractual rent escalations and stable occupancy rates, providing predictable and growing rental income over time. This stability and income predictability can be attractive to income-oriented investors. What’s more, the stock offers a massive 10.66% dividend yield, with shares starting to rise once more – making it the perfect opportunity for value-oriented investors. 

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 Amy Legate-Wolfe has positions in NorthWest Healthcare Properties Real Estate Investment Trust. The Motley Fool recommends Granite Real Estate Investment Trust, NorthWest Healthcare Properties Real Estate Investment Trust, and Slate Grocery REIT. The Motley Fool has a disclosure policy.

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