This 9.4 Percent Dividend Stock Pays Cash Every Month

Here’s how BTB REIT (TSX:BTB.UN) could sooth your high-yield monthly dividend income cravings.

| More on:
Payday ringed on a calendar

Image source: Getty Images

Are you looking for a high-yield monthly dividend stock to generate regular passive income? The best bargains might be found in the far corners of the Canadian stock market. A tiny real estate investment trust (REIT) with a $1.2 billion property portfolio is making monthly distributions that yield a staggering 9.4% annually, with units trading at a 41.5% discount to their fair value.

BTB Real Estate Investment Trust (TSX:BTB.UN) is a high-yield dividend stock offering generous monthly distributions to investors. Its undervalued units could recover as interest rates fall. Here’s why you should consider the small Canadian REIT as a potential source of regular monthly passive income and capital gains as its portfolio occupancy rates and borrowing costs stabilize.

BTB REIT: Generous distributions from diversified income sources

Not all Canadian office REITs are created equal, but even high-quality portfolios can face deep discounts during periods of widespread disfavour. This might be the case for BTB REIT, a small, diversified Canadian property trust owning 75 properties comprising 6.1 million square feet of gross leasable area (GLA). The REIT’s $1.2 billion portfolio is significantly concentrated in Quebec, with 42.7% in suburban office properties, 36.6% in industrial space, and 20.7% in necessity-based retail properties.

Since the pandemic, the market has generally frowned upon office properties as businesses reassess their office space needs, leading to growing office vacancies. However, BTB REIT’s suburban offices seem stable.

The REIT reported an improved total portfolio occupancy rate of 94.5% (on a committed basis) at the end of the last quarter. Office occupancy rates improved to 88.6% from 86.6% a year ago. Portfolio lease renewal rates increased dramatically to 67.7%, up from 37.7% a year ago, and the average lease term of 5.7 years remains respectable.

Interestingly, the trust leased office space at rates 8.6% above prior rents during the past quarter and reported positive same-property net operating income growth.

Despite maintaining strong portfolio occupancy rates, paying well-covered distributions, and growing its same-property net operating income, BTB REIT units trade at a 41.5% discount to their most recently reported net asset value of $5.47.

Should You buy for monthly passive income?

BTB REIT’s monthly distributions during the first quarter of 2024 comprised a seemingly safe 83.9% of its adjusted funds from operations (AFFO). Distributions remain secure despite a 4,000,000 increase in outstanding units as investors use the trust’s distribution-reinvestment plan (DRIP) to reinvest their monthly distributions into new equity units at prices 3% cheaper than the TSX weekly average closing prices. The trust offers a 3% discount on DRIP units.

Stronger occupancy rates and positive re-leasing spreads help sustain BTB REIT’s monthly distributions. Investors could gain more wealth if the trust’s current plan to turn some properties into mixed-use, higher-density assets receives approval in Quebec.

How much income could you earn?

CompanyRecent PriceInvestmentNo. of UnitsDistribution RateTotal DistributionFrequencyTotal Annual Income
BTB REIT (TSX:BTB.UN)$3.17$7,000.002,208$0.025$55.20Monthly$662.40

Canadian REIT distributions are treated as regular income by the Canada Revenue Agency, making them ideal for passive income investments when placed in a Tax-Free Savings Account (TFSA). As shown in the table above, an investor seeking high-yield passive income could earn as much as $662 in annual passive income, or more than $55 every month, from BTB REIT if they allocate their entire $7,000 TFSA contribution room for 2024 to this undervalued monthly dividend stock.

Investment risks to note

That said, dividend yields in the 9% range usually indicate elevated investment risks. Diversification across more assets is essential.

Investors should continuously monitor the trust’s office portfolio for heavy re-leasing discounts and weakening occupancy rates. Leases on about 18.2% of the total portfolio will expire between this year and 2025, making lease renegotiations crucial for distribution safety.

Additionally, although the trust’s 58% total debt ratio is within normal ranges for a REIT, it’s important to watch its average interest rate of 4.4% as mortgages mature while interest rates remain elevated. Any further rate cuts from the Bank of Canada in 2024 could significantly benefit the trust.

BTB REIT units have generated 13.3% in total returns year to date.

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 has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Cogs turning against each other
Dividend Stocks

How Interest Rate Cuts Affect REITs

Now is a good time to investigate Canadian REITs and take a position in the form of stocks or exchange…

Read more »

Simple life style relaxation with Asian working business woman healthy lifestyle take it easy resting in comfort hotel or home living room having free time with peace of mind and self health balance
Dividend Stocks

3 Affordable Passive-Income Stocks That Pay Monthly

These three monthly-paying dividend stocks could boost your passive income.

Read more »

Dividend Stocks

Retirees: 2 High-Yield Dividend Stocks to Buy in July

Retirees can rely on these dividend stocks for steady passive income and high yields.

Read more »

A Canada Pension Plan Statement of Contributions with a 100 dollar banknote and dollar coins.
Dividend Stocks

CPP Benefits Not Enough? This Top Dividend Stock Can Help Fund Your Retirement

Dividend stocks like Fortis Inc (TSX:FTS) have funded many a retirement.

Read more »

A steel grain silo storage tank with solar panel in a yellow canola field in bloom in Alberta, Canada.
Dividend Stocks

The Ultimate TSX Stock to Buy With $1,000 Right Now

Once at triple-digit prices, Nutrien stock (TSX:NTR) now offers a steal of a deal for long-term growth as well as…

Read more »

Paper Canadian currency of various denominations
Dividend Stocks

Set and Forget: 1 Dividend Stock That Could Create $1,000 in Tax-Free Passive Income in 10 Years

Enbridge operates a low-risk business that has allowed the TSX dividend giant to raise its payout by 10% annually since…

Read more »

A close up image of Canadian $20 Dollar bills
Dividend Stocks

Passive Income: How to Make $106 Per Month Tax Free

Holding quality, high-yield dividend stocks such as Freehold Royalties in a TFSA can help you earn tax-free income for life.

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

How to Earn a TFSA Paycheque Every Month and Pay No Taxes on it

Stocks like First National Financial (TSX:FN) pay you monthly. You can also earn monthly dividends through portfolio diversification.

Read more »