The primary reason for doing a job is to get an assured income every month. When you know a specific amount will be credited to your account, planning expenses becomes easy. It is the same reason why people love investing in real estate, as it gives regular monthly rent. Although salary and rent are relatively safe income sources, they also carry risk. There is a risk of losing a job, not finding a tenant during an economic downturn, and even a risk of house prices falling in an extreme scenario. However, there is a safer option that can pay you a fixed dividend amount every month like clockwork.
The dividend king that pays like clockwork
The assurance of dividend income comes from the tenant, Walmart. Imagine a piece of your land being leased to Walmart, a large, resilient grocer with a global presence.
SmartCentres REIT (TSX:SRU.UN) is the landlord of Walmart Canada, earning 23% of its rental income from the retailer. The REIT also leases shops to other big retailers, like Canadian Tire, Loblaws, and Dollarama. It has expanded into mixed-use properties, developing residential, commercial, self-storage, and industrial properties around its shopping centers, thereby enhancing the value of the stores and attracting higher rent.
What sets the REIT apart is its significant landbank and large number of income-generating properties. SmartCentres survived the 2008 financial crisis that took down some of the biggest banks. It even survived the 2020 pandemic that forced most of its peers to slash dividends. SmartCentres is among the few REITs that have paid regular monthly distributions for 21 years without slashing dividends.
The business structure of a trust makes it compulsory for SmartCentres REITs to distribute most of its rental income to unitholders. If a trust retains its earnings, it has to pay a higher tax on retained earnings. Thus, its distribution payout ratio will remain on the higher end, above 75–80%.
The 7.2% yield of the dividend king
SmartCentres REIT’s occupancy rate is at a healthy 98.4% in the first quarter. The same property net operating income surged 4.1% year-over-year as the lease was renewed. The REIT has reduced its distribution payout ratio to 83.8% of adjusted funds from operations, from 101.4% in the first quarter of 2024, by increasing its rent and a recovery in real estate prices. With this payout ratio, it can continue paying $1.85 in annual distributions per unit.
Now, for the dividend yield – the distribution per share as a percentage of the unit price. SmartCentres REIT’s unit price is determined by the fair market value of its portfolio, which comprises 196 properties. As per the REIT’s calculation, its portfolio’s net asset value was $35.51 per unit as of March 31, 2025. However, its unit is trading at a discount of 27.5% at $25.73 amidst economic uncertainty. This discount to the NAV gives you an opportunity to lock in a 7.2% yield ($1.85/$25.73).
Who should invest in this REIT?
SmartCentres REIT can give you monthly payouts, making it ideal for those who want to convert a large amount of money into a regular income. It has suspended its dividend reinvestment plans (DRIP). Thus, expect your investment to start paying a monthly dividend from today’s investment. However, do not expect your principal amount to increase much, as it will take time for real estate prices to grow further.
If you want a stable income every month immediately, SmartCentres REIT is an ideal investment. If you have a significant amount and want to park it for some time until you find its use, maybe for investment or a major spend, the REIT is a good option. It can give you a monthly payout without significantly affecting the principal amount, as the REIT’s unit price is less volatile.
How to invest in this REIT
Once you know the REIT can meet your investment requirements, the next step is to determine how to invest. If you are retiring, and your pension and other income reach the threshold of the Guaranteed Income Supplement or Old Age Security, consider investing through the Tax-Free Savings Account (TFSA). TFSA income is tax-free and will not affect your income-driven CRA benefits.
