Real estate investment trusts (REITs) offer Canadians an easy way to invest in real estate without the massive cash outlay. When you invest in a REIT, you purchase shares of a company that owns and operates a massive portfolio of real estate properties.
As the underlying company generates revenue through rental income, it offers monthly distributions based on the number of units you hold.
While REITs are typically great investments, the last couple of years have been rough for the stock market across the board. Higher interest rates took a toll on financials for REITs as well, resulting in narrower profit margins.
The impact on bottom lines also led to a pullback in share prices. For investors seeking monthly passive income through high-yielding dividends, it meant they could lock in higher yields by investing at discounted share prices.
However, the Bank of Canada finally announced a reduction in key interest rates earlier this month. Interest rates might reduce even further if inflation remains near or below the target range. Lower rates should benefit capital-intensive publicly traded companies like REITs. In turn, these trusts can fuel their expansion plans further and improve bottom lines.
There might be a bull market on the horizon as interest rates go lower. Now might be the perfect opportunity to lock in high-yielding monthly dividends before share prices soar again. This is why we will look at two high-quality REITs to own before that happens.
Granite REIT
Granite REIT (TSX:GRT.UN) is a $4.16 billion market capitalization REIT that acquires, develops, and manages a portfolio primarily consisting of industrial properties across North America and Europe.
Its portfolio consists of various corporate offices, warehouse and logistics, manufacturing, and product manufacturing facilities. The company derives almost all of its revenue from rental income from its portfolio, boasting tenants like Magna International.
Its net operating income in the first quarter of fiscal 2024 increased from $107.4 million last year to $114.5 million. Its adjusted funds from operation increased from $75.1 million to $77.9 million in the same period. Combined with lower interest rates, the next few quarters might see a more significant improvement in its performance.
As of this writing, it trades for $65.98 per share, boasting a juicy 5% annualized dividend yield that it distributes on a monthly schedule.
Dream Industrial REIT
Dream Industrial REIT (TSX:DIR.UN) is a $3.58 billion market capitalization REIT that also owns and manages a portfolio of industrial properties. Its portfolio comprises industrial properties across Canada and the U.S., generating a substantial portion of its revenue through its Canadian portfolio.
The trust aims to continue expanding its already massive portfolio. In the last four years, it has allocated US$10 billion toward more acquisitions to align with its goal.
Due to its focus on a recession-resistant sector, Dream Industrial REIT enjoys a high occupancy rate across market cycles, and it generates stable cash flows. Its first quarter for fiscal 2024 ended with its funds from operations up from US$0.17 per share last year to US$0.24 per share.
As of this writing, Dream Industrial REIT trades for $12.42 per share and boasts a 5.63% dividend yield that it pays in monthly distributions.
Foolish takeaway
Investing in undervalued REITs can help you generate good returns through monthly distributions. Before more interest rate cuts come along, there might still be more volatility in the stock market. Investing in quality REITs with reliable track records for paying investors regularly can be a good way to generate returns while awaiting a bull market.
Investing at current levels means you can lock in high-yielding dividends to generate a passive income and leverage capital gains during recovery for further wealth growth. To this end, Granite REIT looks like a rock-solid investment, and Dream Industrial REIT looks like a dream for income-seeking investors.
