If you’re looking for stocks that offer significant amounts of monthly passive income, real estate investment trusts (REITs) are among the best.
REITs usually have high dividend yields and pay their dividends monthly. The end result of this is – or at least can be – consistent monthly cash flow.
In this article, I explore one high yield REIT that could deliver $37 per month in passive income with just $10,000 invested.
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Killam Apartment REIT
Killam Apartment REIT (TSX:KMP.UN) is a Canadian residential REIT. It invests primarily in apartment buildings from Ontario to the Maritimes.
Killam Apartment focuses on a particularly reliable part of the real estate market: housing.
While property categories like malls and mixed office spaces face some “obsolescence” risk (i.e., their property category falling out of style), residential real estate will always be with us.
Residential REITs may need to invest in renovations and maintenance, but they don’t need to worry about their entire portfolio needing to be re-purposed due to a lack of demand for its original function. That’s not an insignificant advantage. In the 2000s and 2010s, many retail REITs had to sell or fundamentally transform their properties when e-commerce made certain types of in-person shopping irrelevant. Mall REITs also suffered extreme vacancies in the same period. Residential REITs like Killam don’t have this problem, and that’s a major benefit to holding them.
Dividend potential
One thing about Killam Apartment REIT that many investors find appealing is its dividend. The stock has a 4.5% yield, and the dividend is paid out monthly. If you invest $10,000 in KMP.UN, you’ll get $37.20 in dividend income per month – with some potential for the yield to increase. Here’s the math on that.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| Killam Apartment REIT | $16.12 | 620 | $0.06 per month ($0.72 per year) | $37.20 per month ($446.4 per year) | Monthly |
Valuation
Having established that KMP.UN has a lot of dividend potential, we can now move on to determining whether the stock is an overall good opportunity.
First, let’s look at the dividend – whether it is sustainable, well supported, growing, and so on.
KMP’s $0.72 annualized dividend was supported by $0.79 in adjusted earnings per share (EPS) and $1.23 in funds from operations (FFO) per share in the trailing 12-month period. These metrics indicate that the REIT’s dividend is, in fact, sustainable, as both are comfortably above the dividend payout.
KMP.UN’s five-year dividend growth rate was 1.2%. That is not particularly fast; however, it’s below the growth rate in FFO and cash flows, which argues for sustainable growth. So, KMP.UN offers modest dividend growth as well as sustainability.
Last but not least, we can take a look at KMP.UN’s valuation ratios. KMP.UN is modestly valued by these metrics, trading at:
- 5 times sales.
- 0.64 times book value.
- 13 times FFO.
- 15.5 times adjusted FFO.
- 5.1 times rental revenue.
These metrics are fairly low, arguing that KMP.UN is a good value today.
The bottom line
The bottom line on Killam Apartment REIT is that it’s a rock solid residential REIT that should stand the test of time. The fact that it pays out monthly dividend income is just icing on the cake.
