Want $250 in Super-Safe Monthly Dividend Income? Invest $46,083.03 in This Ultra-High-Yield Stock

All investments naturally carry various types of risks, although some government-backed treasuries and bonds are considered risk-free assets for those holding them to maturity. Yet, as we saw in 2022, bond portfolios may still incur capital losses. Yields often compensate for investment risk, and finding a super-safe monthly dividend stock with ultra-high yields should be rare, as this implies investors are receiving excessive compensation.

That said, perspectives shift if you’re a long-term, income-oriented investor seeking dividend stocks with regular payouts that remain relatively “super-safe” over a long investment horizon. In this scenario, daily stock prices, which reflect dynamic risk and return perspectives, become somewhat less relevant after your purchase. Instead, the dividend streams, their growth, and relative safety are your primary concerns.

CT Real Estate Investment Trust (TSX: CRT.UN) units look appealing right now as a source of high-yield monthly distributions secured by long-term lease agreements.

Buy CT REIT for super-safe monthly distributions

Canadian real estate investment trusts (REITs) have been subdued since a market rout in 2022, triggered by rampant inflation and rapid interest rate increases. However, not all REITs are created equal, and CT REIT is a top-tier retail property trust that investors could consider for its 6.3% distribution yield, potential dividend growth, low investment risk, and potential capital gains.

CT REIT owns a portfolio of 374 predominantly retail properties valued at about $7 billion. The trust recently reported a 99.5% occupancy rate. Its high-quality properties have enjoyed near-full occupancy for years and should retain tenants for at least the next decade, given the average remaining lease term of 8.4 years as of April this year.

Most of the trust’s buildings are under multi-year leases with Canadian Tire Corporation (TSX: CTC.A), a well-established retail giant that accounts for 91.5% of the REIT’s total annual rent. The trust’s future cash flows appear well-secured. Investors concerned about high tenant concentration risk should consider Canadian Tire’s consistently profitable business and its investment-grade credit rating – the monthly dividend stock’s key tenant isn’t likely to struggle with rentals anytime soon.

Canadian Tire’s organic growth efforts, supported by a growing immigrant population, should bolster CT REIT’s growth. Additionally, the trust is still finding new development deals with initial yields above 7% annually. CT REIT has room to invest in growth given its low debt ratio of 41%, which provides flexibility to borrow if lucrative opportunities arise.

Most importantly, CT REIT’s distributions seem well-covered by recurring rental cash flow. The trust paid out only 73% of its adjusted funds from operations (AFFO) during the first quarter of 2024. Trustees have raised distributions for 10 consecutive years, and there remains room for further increases.

A consistent and generous monthly dividend stock

CT REIT has consistently raised distributions over the past decade, regardless of market dynamics, including a 3% increase in May that reassures investors during turbulent times.

CRT.UN data by YCharts

CT REIT has built a solid reputation for consistently increasing its monthly distributions each year. The monthly dividend stock has raised payouts during prosperous times for Canadian REITs and continued to do so even when the stock market shunned the asset class. The trust’s payouts, mandated by REIT regulation, could keep growing with profitability, regardless of how REIT valuations perform.

Investors in CT REIT units could benefit from capital gains as interest rates fall. The fair value of its properties rises in a declining interest rate environment, such as the one Canada has just entered.

Based on management’s fair value estimates released in May, a 25 basis point drop in Canadian interest rates could add $264 million in fair value to CT REIT’s property portfolio. The Bank of Canada reduced interest rates by 25 basis points in June.

CT REIT will report second-quarter earnings on August 1 after markets close.

How to earn $250 in monthly passive income

To earn $250 a month, one could purchase 3,243 CT REIT units, as shown in the table below:

Contractual rent escalations and new property additions should support the trust’s annual distribution increases for many more years.