If your goal is to own a stock for dependable income, avoiding dividend cuts is half the battle. When a payout gets slashed, whatever thesis you had falls apart. A key tool to prevent that scenario is understanding the payout ratio – usually the percentage of earnings paid out as dividends.
But that metric doesn’t always tell the full story. Utilities use distributable cash flow because accounting earnings are distorted by heavy capital spending. Real estate investment trusts do something similar using funds from operations (FFO), which gives a cleaner picture of their ability to pay and grow distributions after accounting for depreciation.
Using this lens brings up one TSX-listed REIT that stands out: Canadian Apartment Properties REIT (TSX:CAR.UN), better known as CAPREIT. Here’s why it looks undervalued and unusually safe as an income generator.
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The case for CAPREIT
CAPREIT owns one of Canada’s largest portfolios of residential properties, including tens of thousands of apartment units across major urban centres. Its tenant base is diversified across income levels and regions, and its average rent continues to rise as demand for rentals outpaces supply on the back of high immigration and urban density.
Residential REITs tend to be structurally safer than commercial REITs because they avoid volatility in struggling categories like office. CAPREIT’s 97.6% occupancy rate shows how tight Canada’s rental market is, even with interest-rate volatility.
This resilience has supported steady FFO-per-share growth. Over the last five years, FFO per share has increased at an annualized 2.4%, reaching $2.54 in Q3 2025, even in a challenging environment for Canadian REITs.
The monthly distribution of $0.1292 per unit translates to a payout ratio of roughly 61%, which is very sustainable for a residential REIT. The distribution has also grown at a 5.4% annualized rate over the past five years.
At today’s unit price, CAPREIT yields about 4.1%, which is higher than its historical average. That tells me the units are potentially undervalued. The REIT trades near 15 times price-to-FFO, below sector averages, despite its solid performance and growing asset base.
Buying CAPREIT for passive income
Each unit of CAPREIT you buy today pays $0.1292 every month, hitting investor accounts between the 15th and 17th. The ex-dividend date is usually the end of the month. To receive the next dividend, you have to own CAPREIT before and up to the ex-dividend date.
But because REIT distributions are mostly taxed as ordinary income with some return of capital mixed in, the cleanest place to hold CAPREIT is a Tax-Free Savings Account (TFSA). In a TFSA, you avoid the tax complications and keep all distributions tax-free.
Inside a TFSA, CAPREIT functions like a hassle-free rental property. You get consistent monthly income, no tenants to deal with, no repairs, and the ability to reinvest distributions for compounding or withdraw them and spend as you wish.
