The S&P/TSX Composite Index, the benchmark index for the Canadian stock market, has been consistently hovering around new all-time highs for several weeks. The bull market performance indicates that plenty of publicly traded companies are trading at higher share prices.
While investing in real estate has long been a reliable method to generate passive income, the cash outlay to buy investment property and the hassle of managing it can be too much for most in this economy. What if you wanted to invest in real estate but without the huge amount of cash and trouble that comes with it? You can consider investing in a Real Estate Investment Trust (REIT) instead.
REITs trade on the stock market, but their status as stocks is kind of debatable. Technically, REITs behave like mutual funds. However, REITs have the liquidity of stocks and hold real estate equity, making them qualify for stock market trading.
If you are hungry to generate high-yielding returns from investing in the market, there’s a beaten-down REIT that might be worth a closer look.
Northwest Healthcare Properties REIT
Northwest Healthcare Properties REIT (TSX:NWH.UN) is a $1.2 billion market-cap REIT that focuses on real estate in the healthcare sector. The company owns an extensive portfolio of high-quality healthcare properties in Canada, Germany, Brazil, and Australasia. Its portfolio in Australasia generates most of the company’s revenues.
NWH.UN owns several buildings housing healthcare administrative offices and health clinics. Most of its holdings are in Europe and Canada, both regions with mostly publicly funded healthcare. This means government tax revenues back its tenants, virtually guaranteeing the ability to pay on time. This is not always the case with residential REITs, which depend on rental income from individuals.
Northwest Healthcare Properties has not had the best performance on the stock market in recent years, but the latest quarter indicates the chances of a good turnaround for the REIT. The company’s first quarter for this fiscal year saw it report a 12% year-over-year increase in its adjusted funds from operations, a 96.5% occupancy rate, and $73.8 million in same property net operating income.
Two concerning factors were the $15 million net loss and the decline in revenue, but that is easy to explain away. NWH.UN is currently offloading assets that have failed to be profitable. While divestiture from those assets will result in short-term expenses, getting rid of assets that become a burden for the trust will be good in the long run.
Foolish takeaway
The most important thing to consider when investing in a top monthly dividend-paying stock is whether the income potential is meaningful. This is where NWH.UN can really shine as an attractive holding to consider. As of this writing, the REIT trades for $4.97 per share, down by 15% from its 52-week high, and it offers $0.03 per share per month, translating to a 7.2% annualized dividend yield.
Offloading unprofitable assets and improving its overall financial position can help the trust comfortably fund its high-yielding payouts and further expand its portfolio. If you’re looking for a relatively defensive investment that generates monthly returns, NWH.UN might be a good holding to consider.
