If you’re looking to turn your $7,000 Tax-Free Savings Account (TFSA) contribution into steady, tax-free passive income, Dream Industrial Real Estate Investment Trust (TSX:DIR.UN) could be a strong option. This REIT specializes in industrial properties across Canada and Europe, offering investors a mix of stability, income, and long-term growth potential. With a solid track record and a near six percent dividend yield, Dream Industrial presents an appealing opportunity for those seeking reliable monthly payouts.
The Dream
Dream Industrial’s portfolio consists of 546 high-quality industrial properties. These include warehouses and distribution centres that remain in high demand as e-commerce and supply chain networks continue to expand. The REIT benefits from a diversified geographic footprint, with properties across Canada and Europe, thus ensuring that its income streams are not overly reliant on any one region. This strategic positioning has allowed the dividend stock to maintain strong occupancy rates. All while capitalizing on market trends that favour industrial real estate.
The dividend stock’s latest earnings report provided a mixed picture but reinforced its overall financial strength. In the third quarter of 2024, Dream Industrial reported net income of $13.8 million. Though down from $50.5 million in the same quarter of 2023. While this may seem concerning at first glance, the decline was largely due to non-cash fair value adjustments rather than operational issues. More importantly, the REIT saw a year-over-year increase of 4.1% in diluted funds from operations (FFO) per unit, reaching $0.26. This is a positive indicator, as FFO is one of the most critical metrics for evaluating REIT performance, reflecting the company’s ability to generate cash flow.
Occupancy rates remain robust, which further supports the company’s ability to maintain its dividend payments. As of September 30, 2024, Dream Industrial had an in-place and committed occupancy rate of 95.5%, a slight increase from the previous quarter. Given the continued demand for industrial space, particularly for logistics and warehousing, Dream Industrial is well-positioned to maintain its strong leasing fundamentals.
Passive income payer
One of the most attractive aspects of investing in Dream Industrial is its monthly dividend payments. The dividend stock currently distributes $0.0583 per unit each month, totalling approximately $0.70 per year. With the stock trading around $11.64, this translates to an annual dividend yield of about 6%. For investors contributing $7,000 to their TFSA, this means an estimated annual dividend income of $420, or roughly $35 per month. Since TFSA earnings are tax-free, this income is yours to keep without any deductions, thus making it an excellent option for passive income seekers.
In terms of valuation, Dream Industrial appears attractively priced compared to its peers. The dividend stock is currently trading at a price-to-book ratio of approximately 0.73, meaning it is valued below the book value of its assets. This suggests that investors are getting access to a well-diversified portfolio of income-generating properties at a discount.
That being said, investors should be aware of some risks. One concern is the dividend stock’s high payout ratio, currently sitting at approximately 146.7%. This indicates that Dream Industrial is paying out more in dividends than it is earning in net income, which can raise sustainability concerns. However, because REITs primarily use funds from operations to assess dividend viability rather than net income, the payout remains manageable as long as cash flows remain stable. Plus, the REIT’s diversified portfolio and high occupancy rates help mitigate some of these risks.
Bottom line
For investors looking to generate passive income in their TFSA, Dream Industrial presents a compelling opportunity. A $7,000 investment in this REIT could provide consistent, tax-free income with the potential for long-term appreciation. With strong occupancy rates, a steady dividend, and a well-diversified portfolio, Dream Industrial is well-positioned to continue rewarding investors while capitalizing on the growing demand for industrial real estate. While no investment is without risks, the combination of stable cash flows, reasonable valuation, and strategic expansion makes Dream Industrial an attractive choice, especially for those seeking reliable monthly income.
