Over the past 10 months, the Bank of Canada has reduced its interest rate by 225 basis points to 2.75%. Meanwhile, economists are predicting two additional 25-basis-point rate cuts this year, lowering the benchmark interest rate to 2.25%. In this low-interest-rate environment, investors can buy quality monthly-paying dividend stocks to boost their passive income.
Against this backdrop, let’s assess SmartCentres Real Estate Investment Trust (TSX: SRU.UN) and RioCan Real Estate Investment Trust (TSX: REI.UN) to find which stock would be an excellent buy now.
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SmartCentres REIT
SmartCentres REIT has a presence in each province across Canada through its 195 strategically located properties. Approximately 95% of its tenants have a national or regional presence, and 60% provide essential services. Furthermore, the top 10 clients account for approximately 45% of the revenue, while Walmart generates around 23%. Amid its asset quality and solid tenant base, the REIT enjoys an impressive occupancy rate of 98.7% in the fourth quarter. These healthy operating performances deliver stable and predictable financials, allowing the company to reward its shareholders with healthy dividends. Meanwhile, the REIT currently pays a monthly dividend payout of $0.1542/share, translating into a forward dividend yield of 7.32%.
Moreover, the company has an impressive developmental pipeline of 85 million square feet of mixed-use properties, with around 1% currently under construction. Furthermore, leasing out its vacant spaces and renewing lease agreements at higher rates could also boost its financials and cash flows, thus allowing it to continue its dividend growth. Additionally, the company’s valuation appears reasonable, with an NTM (next-12-month) price-to-earnings multiple of 15.4.
RioCan REIT
RioCan REIT owns and operates 178 mixed-use properties in prime locations across the country, with a gross net leasable area of around 32 million square feet. Last year, the company leased 4.8 million square feet of properties, including 1.5 million square feet of new leases. Amid these leasing activities, the company’s occupancy rate increased to 98% at the end of last year. Its blended leasing spread rose from 10.7% in 2023 to 18.7%. Additionally, the company’s same-property net operating income grew 2.2%, which was lower than the company’s long-term guidance of 3% due to the vacancies of 261,000 square feet in the earlier part of the year.
Amid these solid operating performances, RioCan REIT’s FFO (funds from operation) adjusted per unit rose 2.3% to $1.81. Its net income per unit grew from $0.13 in 2023 to $1.58, primarily due to a fair value loss of $450.4 million in 2023. Additionally, its adjusted debt-to-adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) ratio improved from 9.28 to 8.98, while its liquidity stood at $1.7 billion as of the end of 2024.
Moreover, RioCan REIT has a solid developmental pipeline of 43.3 million square feet of properties, with 0.9 million square feet under construction. Furthermore, leasing vacant space and generating revenue from property sales could support its financial growth in the coming quarters. Meanwhile, the company’s management expects FFO per unit to be between $1.89 and $1.92 this year, with the midpoint representing a 6.7% increase from the previous year. Amid these growth prospects, I believe RioCan REIT’s future dividend payouts will be secure. It currently pays a monthly dividend of $0.0965/share, translating into a forward dividend yield of 6.77%. Meanwhile, it currently trades at an NTM price-to-earnings multiple of 18.
Investors’ takeaway
Both REITs offer attractive buying opportunities, given their higher occupancy rate, solid tenant base, and healthy growth prospects. However, I am more bullish on SmartCentres REIT due to its higher occupancy rate, cheaper valuation, and higher dividend yield.
