The 7.3% Dividend Stock You Can Depend On

Despite risks, this key Canadian dividend stock could continue to deliver sky-high yields for a very long time — a perfect pick for income investors.

Key Points
  • SmartCentres REIT boasts a high dividend yield exceeding 7% due to its structure that requires passing over 90% of net income to investors, making it a compelling option for passive income seekers.
  • With a robust portfolio largely anchored by Walmart, SmartCentres offers stability and rent growth potential despite retail market volatilities, positioning it as a top retail REIT choice.

A company with a dividend yield above 7% is one that many investors would rightly question. Dividend yields typically fluctuate over time alongside a company’s stock price. When a given company’s stock price surges, its yield will come down, and vice versa. Typically, there’s some sort of range within which a given dividend yield will trade.

For SmartCentres REIT (TSX: SRU.UN), and a select few other dividend stocks (mostly real estate investment trusts), these yields can be higher. That’s mostly because of the structure of these trusts, which have charters that require more than 90% of the net operating income generated to be passed back to investors in the form of distributions.

For those looking to create meaningful passive-income streams with a high likelihood of seeing continued income growth over time, REITs are a great option in that regard. Let’s dive into why I think SmartCentres is among the top REITs investors can rely on for this growth, even though the company’s yield is higher than the industry average.

hand stacking money coins

Source: Getty Images

The business model has risk, but it’s somewhat mitigated

As a leading purveyor of Canadian commercial real estate, SmartCentres focuses on leasing out prime commercial real estate to retailers and other business operators. The company’s portfolio of nearly 200 properties in Canada is among the best-in-class in this segment. Most notably, these locations are often anchored by Walmart, a company I’d argue provides about as rock-solid an anchor tenant as they come.

In essence, I view SmartCentres as a unique and sneaky way to play the profitability (and future rent growth) stemming from Walmart’s Canadian operations. And even within the company’s portfolio of properties that aren’t leased directly to Walmart, the other businesses in various malls around the country benefit from the foot traffic associated with Walmart’s presence, leading to very low occupancy rates over the long term.

So, why the sky-high dividend yield?

SmartCentres has gone through various periods where its share price has declined considerably as investors looked to offload any real estate holdings with exposure to retail. I think this is a generally misguided view, as not all real estate leased to retailers is the same.

In essence, I think SmartCentres is one of the few retail REITs worth considering right now, recognizing fully that consumers are pulling back on spending broadly as prices rise. Walmart is one of the last bastions of hope for millions in the middle class, and unfortunately, I think it’s going to be this way for a while.

Fool contributor Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool recommends SmartCentres Real Estate Investment Trust. The Motley Fool has a disclosure policy.

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