Investing in real estate investment trusts (REITs) allows you to create a passive-income stream at a low cost and gain exposure to the real estate sector. Moreover, a few Canadian REITs have a monthly dividend payout, making them all the more attractive to income-seeking investors.
In this article, I have identified a monthly dividend stock that offers you a forward yield of 7.3%. Let’s see if you should own this REIT right now.
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Is this TSX dividend stock a good buy?
With a market cap of $3.66 billion, SmartCentres (TSX:SRU.UN) is a diversified REIT with a growing mixed-use portfolio. With roughly $12 billion in assets and 35 million square feet of income-producing retail and office properties, SmartCentres pays a monthly dividend to shareholders.
SmartCentres REIT reported solid fourth-quarter (Q4) 2024 results, highlighting the strength of its retail portfolio. Occupancy reached a five-year high of 98.7%, while CEO Mitch Goldhar stated during the company’s earnings call that the retail sector in Canada “continues to power along with strong fundamentals. “
In Q4, the REIT reported same-property NOI (net operating income) growth of 3.8% and rental growth of 8.8% on lease extensions (excluding anchors) and 6.6% overall. Cash collections remained strong at 99%, underscoring the quality of SmartCentres’s tenant mix.
Moreover, SmartCentres announced new deals with major retailers, including a Walmart lease for its South Oakville Center location and a Costco lease for a vacant ex-Rona store at its Winston Churchill and 401 Center in Mississauga. During the year, it also executed 253,000 square feet of deals for new retail construction with brands including Canadian Tire, Winners, Homesense, and other national retailers.
For the three months ended December 31, 2024, adjusted FFO (funds from operations) stood at $0.56 per unit, a 9.8% increase compared to $0.51 in 2023. Net operating income increased by $12.3 million or 9% from the same quarter last year, primarily due to lease-up activities and increased common area maintenance recoveries.
On the development front, SmartCentres continued building its mixed-use development pipeline, securing 9.8 million square feet of permissions during 2024, bringing the total mixed-use zoning achieved to 59 million square feet. The company’s 458-unit apartment rental project, The Millway, reached 95% occupancy at quarter end, exceeding planned rental rates.
The REIT maintains a strong balance sheet and an unencumbered asset pool of $9.5 billion. Subsequent to quarter end, SmartCentres issued $300 million of senior unsecured debentures with a 4.737% interest rate and a 6.5-year term, using the proceeds to repay higher-interest floating-rate debt.
Management expressed cautious optimism for 2025, projecting same-property NOI growth in the 3-5% range, likely at the lower end. Executives noted that strong tenant demand is expected to continue throughout the year.
What is the target price for this TSX REIT?
Analysts tracking SmartCentres REIT expect it to report an adjusted FFO of $1.93 per share in 2025. Comparatively, it pays shareholders an annual dividend of $1.85 per share, which translates to a payout ratio of 96%.
A high payout ratio suggests that the REIT is unlikely to increase its dividend payout this year. Given consensus price targets, the TSX stock trades at a discount of 6% at 13 times forward FFO. If we adjust for its dividend payout, cumulative returns will be closer to 13% over the next 12 months.
