Real estate can be a fantastic way to create passive income through a Tax-Free Savings Account (TFSA). The main reason? Real estate investment trusts (REIT) must pay out 90% of taxable earnings, and that usually comes out through dividends. This allows investors to practically guarantee payment each and every quarter, if not every month.
Yet investors still want those dividends to be secure. After all, just because REITs need to pay out dividends doesn’t mean those dividends will be high. Plus, you want a company that’s stable and growing, one that can not only keep paying, but also increase dividends. That’s why today we’re going to look at industrial REIT Granite REIT (TSX: GRT.UN).
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Why industrial works
First, let’s get into why industrial real estate works so well. In short, the industry has exploded. The rise of e-commerce, logistics, and supply chains means there’s massive demand for warehouses, distribution centres, and light-industrial properties. Major tenants we use daily need modern facilities close to large urban centres. And that demand leads to high occupancy, with stable rents.
These leases aren’t just stable, but long. Industrial tenants usually sign multi-year agreements, so investors look forward to steady cash flow. That’s key when you’re investing in a TFSA and want to compound decades of income. And with vacancy rates near record lows, landlords can put their rents upwards and onwards.
Due to all this low vacancy and high demand, industrial REITs keep expanding. New developments and acquisitions are simply part of the plan. This makes an investment in these dividend stocks today not just stable now, but for years and even decades to come. So let’s look into why Granite could be a strong option.
Why Granite
Of all the industrial stocks out there, even beyond REITs, Granite looks the strongest. The dividend stock combines steady income, strong fundamentals, and exposure to resilient real estate. And clearly, this trend is working well for the dividend stock.
Granite proved this during its most recent quarterly earnings. The company boasted profit margins above 56%, with operating margins above 75% as well. Earnings climbed 25% year-over-year, with revenue up 7% to $593 million. And yet, the dividend stock is still valuable trading at just 12.4 times earnings, with a price-to-book ratio under 1! It goes to show that investors can still undervalue stability.
That’s especially if you then take into consideration the dividend. This dividend stock currently holds a 4.3% dividend yield, generating passive income at a steady clip not just quarterly, but monthly! A payout ratio of 62% makes it even more appealing, as the company is dead centre on where it needs to be to maintain and even increase dividends. All while holding enough cash to continue expanding.
Bottom line
Taking this all into consideration, Granite REIT is a strong buy right now. The balance sheet is excellent, payout ratio solid, and dividend almost constant. In fact, a $7,000 investment could bring in monthly income of $25, or $302 each year!
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY | TOTAL INVESTMENT |
|---|---|---|---|---|---|---|
| GRT.UN | $78.90 | 89 | $3.40 | $302.60 | Monthly | $7,022 |
So, if you’re looking for a dividend stock that’s going to keep on giving, Granite REIT looks like one practically every investor should consider. Not just now, but for the next several decades in a TFSA.
