One of the more compelling areas of the market for many investors looking to create a passive-income stream with their equity portfolio is to look at dividend stocks within certain pockets of the economy. One area that’s chock full of top-tier dividend stocks is the real estate sector, with real estate investment trusts (REITs) among the stocks paying out the highest percentage of their income to investors.
Much of that has to do with the fact that most REITs are required to do so under law (and via their charters). Accordingly, for those seeking passive income from real estate, investing in such companies can be an excellent option, given the solid underlying asset base that provides these cash flows in all types of market environments.
Killam Apartment REIT (TSX: KMP.UN) is one company I’ve touted in the past. But it is also a stock that’s down roughly 10% over the past year.
Let’s dive into whether a rebound is in order for this top-tier Canadian REIT.
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What gives?
Real estate valuations have been volatile of late, and for good reason. While interest rates have come down considerably in the Canadian market thanks to the Bank of Canada’s recent interest rate moves (relative to other central banks), it’s also true that valuations in the Canadian real estate market remain very high.
Accordingly, with concerns around rent pressures hitting some REITs with residential exposure (such as Killam), those who may be looking to time an entry point into this market have plenty to consider.
I’m of the view that real estate is a long-term asset class to hold. Indeed, one of the most favourable aspects of owning real estate is the passive income this asset class can provide. And on that front, Killam’s better than 4% yield should be attractive, particularly for those investors looking at other fixed income assets like bonds right now.
What to do?
In my view, Killam looks like a buy here, particularly for those investors who believe that interest rates are more likely to decline than increase over time.
Of course, anything can happen, and we’ve seen how volatile the geopolitical backdrop has been of late. But for investors looking for quality in the mixed-use/residential side of the real estate market, Killam is one top REIT I think is worth considering at just 3.8 times earnings.
