The Tax-Free Savings Account (TFSA) is one of the most powerful tools for Canadian investors to build an income-producing portfolio. The only problem is finding that perfect TFSA stock to add to it.
The perfect TFSA stock comes down to finding the perfect balance between income generation and stability. By extension, that also means picking a stock that can continue to generate that income irrespective of how the market fares.
Real estate investment trusts (REITs) are great examples of this. One REIT in particular that can provide that desired recurring monthly income is SmartCentres REIT (TSX: SRU.UN), and here’s why this could be the monthly income stock your portfolio needs.
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Why SmartCentres REIT fits any TFSA strategy
SmartCentres REIT owns a portfolio of 198 retail properties. The property mix includes predominantly necessity-based retail properties that are located across Canada.
Even better, many of those retail properties are anchored by some of the largest names in retail, such as Walmart. This serves as a traffic magnet for the properties, which, in turn, provides SmartCentres with a healthy recurring revenue stream.
Those primary tenants tend to have longer-term leases, which adds an element of stability into the mix. And that’s not all.
SmartCentres’s properties also contain several secondary tenants. These tenants feed off the traffic from the primary anchor tenant, creating a natural synergy between both primary and secondary tenants.
Those secondary tenants offer a similar necessity-based appeal, and include pharmacies, banks, restaurants, doctors’ offices and other complementary businesses.
In short, the combination of a strong anchor tenant and complementary secondary tenants provides defensive appeal and stability.
Another key point to note is the changing composition of SmartCentres portfolio. In addition to its core retail properties, SmartCentres has moved in recent years to include a growing number of property types.
That includes office, self-storage and even residential properties. The appeal here is simple. SmartCentres can unlock value from the large swaths of land that the REIT already owns. The REIT owns approximately 3,500 acres of land across Canada, and this strategy represents an intensification of SmartCentres’s portfolio.
Those new properties often encompass residential towers sitting atop retail sites. The shift to include both self-storage and office space follows a similar pattern of repurposing underutilized lands.
In short, this allows SmartCentres to generate additional income streams from a single property, which is good for the REIT and investors seeking that perfect TFSA stock.
Let’s talk about that 6% dividend
One of the main reasons why investors turn to REITs and SmartCentres in particular is for the monthly income that the REIT can provide.
As of the time of writing, SmartCentres offers a yield of 6.54%. This means that investors who can allocate just $12,000 towards SmartCentres will earn a monthly income of just over $65.
That’s not enough to retire on, but it is enough to generate a few new shares from reinvestments each month. And those new shares don’t require any additional funding.
Even better, within a TFSA, those monthly distributions are entirely tax-free. This makes SmartCentres’s position within TFSA much more powerful. By extension, it also means that investors can take advantage of long-term compounding without needing to consider the tax consequences.
In short, SmartCentres really is the perfect TFSA stock for investors seeking a monthly income stream.
SmartCentres is the perfect TFSA stock right now
SmartCentres offers the qualities that a perfect TFSA stock needs: income, stability and long-term growth potential. Between the REIT’s necessity-based retail footprint and its growing emphasis on other property types, SmartCentres is moving from being a mall landlord REIT to a community builder REIT.
Factor in the attractive monthly distribution, and you have a solid REIT investment that should, in my opinion, be a core position in any well-diversified portfolio.
