Canadian real estate investment trust (REITs) stocks are a great place to collect monthly passive income. REITs collect rents monthly. To maintain their REIT status on a tax basis, they must also distribute most of their rental income to unit holders.
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REITs are ideal platforms for earning monthly passive income
As a result, REITs are the one Canadian stock sector where you can expect a nice stream of monthly passive income. REITs are a fantastic alternative to directly owning your real estate. Firstly, you get access to a diverse mix of real estate. You can choose what asset classes fit your risk tolerance best.
Likewise, you get to own high-quality assets that would not normally be possible to buy on your own. Given their scale, REITs have access to capital and debt markets that individual investors just can’t access.
Lastly, when owning a REIT, you don’t need to manage collecting the rents or fixing the properties. In many cases you get access to highly adept management teams that are skilled at creating value.
If you pick your real estate stocks wisely, you can (in many instances) earn better income and capital returns than if you actually owned the real estate yourself. Here are two cheap Canadian REIT stocks that look like great picks for value, passive income, and even growth.
First Capital REIT: A safe and steady real estate stock
First Capital REIT (TSX: FCR.UN) is an ideal passive income stock for all of the above factors. It operates 138 urban-focused, grocery-anchored properties across Canada. Many of these properties are in prime locations.
Given the essential services provided at its locations, First Cap tends to have solid 95%-plus occupancy. Likewise, it can capture above-average retail rental rates. That has translated into high single-digit funds from operation (FFO) per unit growth (a measurement of cash flow for REITs).
This stock is cheap. It trades at a 16% discount to its net asset value. The market is not factoring in its significant land assets and the ability to develop in prime locations in the future.
Today, this passive income stock yields 4.8%. First Cap pays a $0.072 per unit monthly distribution.
BSR REIT: Value, growth, and passive income
BSR REIT (TSX:HOM.UN) offers similar opportunities as First Cap for passive income and capital returns. It is a Canadian-listed stock, but all its assets are in the United States. As is typical, it trades at a substantial discount to its U.S. peers. This arbitrage can be an attractive opportunity.
BSR has a portfolio of well-located garden-style apartments in the U.S. sunbelt. Even though a lot of new supply recently came to its markets, BSR was able to maintain stable rental rates and 95% occupancy.
BSR’s stock has been trading at a substantial discount to its private market value. The company has been buying back a lot of its stock. Even in a down year, it has grown FFO/unit by over 5%. It had the confidence to raise its distribution by 7.7% last quarter.
It looks set up to resume strong single-digit rental rate growth in 2025. Unit holders could get the benefit of a stock re-rating and FFO/unit growth in the coming years.
Today, BSR stock yields 4.2%. Investors would earn a $0.064 per unit of passive income every month.
