Create a Pension Passive-Income Stream With This TSX Stock

Here’s why Choice Properties REIT (TSX:CHP.UN) could be your top choice for monthly passive income in during retirement

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Canadian investors looking to create new passive-income streams for retirement have a wealth of options in July. Several Canadian dividend stocks have maintained or raised payouts for 2024, and some powerhouses are poised to keep making stable or growing monthly payouts over the next decade. Choice Properties Real Estate Investment Trust (TSX:CHP.UN) is a favourite passive-income play as it offers a compelling combination of steadily growing revenue, consistent distribution payouts, and a strong track record — all contributing to a reliable retirement passive-income stream.

Why choose Choice Properties REIT for passive income?

Choice Properties REIT is one of the largest property owners in Canada. It boasts a diversified portfolio of 705 primarily consisting of retail properties, some flex-industrial, and a growing mixed-use and residential segment, all worth nearly $17 billion. Investors can buy Choice Properties REIT for its well-covered monthly dividend payments yielding a respectable 5.7% annually, its strong financial position, stable growth business outlook, and its resilient real estate portfolio.

The real estate investment trust’s (REIT’s) portfolio retains strong occupancy rates close to 98%, and its mostly comprised of necessity-based retail assets, mostly anchored by Loblaw its biggest single tenant contributing 56% of the REIT’s gross annual rent, which helps to ensure stable rental income.

What’s more, Choice Properties REIT is seeing steady growth in same-property net operating income (NOI) as its property economics improve. A recent Colliers International report found that “foot traffic is rising for most merchants, both month over month and since the beginning of 2024,” as Canada’s strong population growth rates in recent years have reflected in increased customer visits to grocery stores, bank branches, and coffee shops. The trust has a firmer negotiating hand in rent negotiations.

Management expects to realize 2.5-3% year-over-year growth in same property NOI on a cash basis and to grow funds from operations (FFO) per unit by up to 3% in 2024. The trust’s distribution quality could improve in 2025.

A top performer among REITs

Choice Properties REIT is a high-quality real estate investment for recurring monthly income that continued to shine when peers in its asset class faltered since interest rates soared in 2022. Its strong balance sheet, with a debt-to-total assets ratio of 40.3%, is one of the most fortified in its class. Regardless, the trust has been a historical outperformer even before the recent rate hikes.

CHP.UN Total Return Level Chart

CHP.UN Total Return Level data by YCharts

The REIT significantly outperformed peers over the past decade on a total-return basis. It could have more than doubled your money with a 115% total return over the past decade. Vanguard FTSE Canadian REIT ETF, which holds 15 REITs in its portfolio, could only generate a 56% total return during the same period.

Strong distribution coverage

Investors should closely monitor an investment’s capacity to keep paying stable dividends and meet regular income distributions when creating a pension passive-income stream. Choice Properties REIT’s most recent distributions during the first quarter comprised just 78.7% of its adjusted funds from operations (AFFO).

AFFO measures a REIT’s most recurring distributable cash flow, and payout rates below 100% may be sustainable for decades. This REIT pays out under 80% of its AFFO, a 310% improvement year over year! Management expects to grow funds from operations per unit by up to 3% in 2024. Distribution quality could improve going into 2025, providing room for distribution raises in the future.

Growing AFFO allows for payout increases and creates more room for reinvesting cash flows into development projects. The trust could sustain its distributions for many years to come.

How much to invest to create $577 annual passive-income streams

As shown in the table below, a hypothetical $10,000 investment in Choice Properties could create $48 per month in passive-income streams or more than $577 every year to augment cash income during retirement.

CompanyRecent PriceInvestmentNumber of UnitsDistribution RateTotal DistributionFrequencyTotal Annual Income
Choice Properties REIT (TSX:CHP.UN)$13.11$10,000763$0.063$48.07Monthly$577.10

Be warned that REIT distributions may be taxed as ordinary income; you could improve tax efficiency by stashing REIT investments in tax-advantaged accounts, especially the Tax-Free Savings Account.

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 positions in and recommends Colliers International Group. The Motley Fool has a disclosure policy.

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