Investors looking for dividend stocks that pay out consistent (and growing) distributions over time have plenty of options to consider. However, real estate investment trusts (REITs) are often a go-to place for such investors to look first for a few reasons.
First, holding equity in funds focused on acquiring and managing real estate provides a great deal of relative defensiveness. Real estate assets are known for their robust cash flow profile, and are hard and costly to replicate. Additionally, REITs are mandated to pay out at least 90% of their net operating income to investors. Thus, as cash flows rise in line with rent growth and other market factors, investors see higher income streams over time.
That’s a win. But picking the right sector (residential, commercial, office, retail, industrial, mixed-use, etc.) can be difficult. Here’s one REIT in the industrial sector that I think could be a winner, and why.
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Dream Industrial REIT
Dream Industrial REIT (TSX: DIR.UN) is one of Canada’s top REITs, with a high-quality portfolio of assets that provide warehousing and distribution for world-class blue-chip companies seeking close proximity to population centres.
Dream Industrial’s net operating income (NOI) growth in recent years has been robust, as companies look to position themselves for growth in Dream Industrial’s properties. With one of the lowest vacancy rates of its peer group, and plans to expand its portfolio over time, investors will continue to look at the company’s balance sheet for hints of growth.
I’d suggest that Dream Industrial is perhaps best positioned to continue to grow in this sector, and its 5.6% dividend yield could be among the best in this space.
Industrial real estate will continue to feel the love
Unlike office real estate and other sub-asset classes within the real estate sector, industrial real estate carries its own supply and demand fundamentals, which I’d argue are much more favourable.
Perhaps the easiest thesis to understand is the reality that large parcels of land where warehouses and other distribution facilities can be built in close proximity to city centers aren’t being made anymore.
Thus, REITs such as Dream Industrial that hold such world-class blue-chip assets are likely to continue to increase in value, while other companies and trusts looking to invest in this space have difficulties coming up with the financing to acquire new assets.
With a loan book that was also created years ago, and many of these loans refinanced at attractive rates, I’d suggest it would be hard to find the kind of NOI growth outside of existing operators. In my view, Dream Industrial is one of the best in this space to consider right now.
