Are you looking for liquid investments that pay cash income each and every month?
If you are, then real estate investment trusts (REITs) might be just what the Doctor ordered.
REITs usually have high yields, passing 90% or more of their earnings on to shareholders. They also usually pay out their dividends on a monthly schedule, which distinguishes them from the vast majority of common stocks.
Stocks typically pay dividends quarterly, to align with the three month earnings reporting cycle. REITs, with their relatively stable and predictable cash flows, can afford to pay dividends more frequently. This makes REITs natural choices for those who are using securities to pay for their living expenses, such as retirees. In this article, I will share one nearly-perfect REIT with a 4% yield that pays monthly.
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Killam Apartment REIT
Killam Apartment REIT (TSX: KMP.UN) is a Canadian REIT that invests in residential property. It owns property across seven different provinces, including Ontario, Alberta, British Colombia and Nova Scotia. The REIT’s properties fall into three different categories:
- Apartment buildings.
- Manufactured home communities. Basically, trailer park communities.
- Commercial properties. Commercial real estate leased out near Killam’s residential properties, to support its residents.
The geographic and property categories above give Killam an admirable amount of diversification in its portfolio, while still keeping it squarely in the residential REIT category. This is important because residential REITs have some advantages that other types of REITs don’t, as we’ll see in the next category.
The virtue of residential REITs
There are many different types of REITs: residential, industrial, hotel, malls. Many of these types of REITs are subject to unpredictable trends in property desirability. A classic example here is mall REITs, whose property type has lost popularity in North America.
Residential REITs don’t have this problem. Housing will always be in demand. Apart from rare incidents, such as depopulation events, residential REIT holders don’t need to worry about their properties becoming irrelevant. This makes such REITs more dependable than much of the competition.
Respectable growth and profitability
Over the years, Killam Apartment REIT has demonstrated respectable growth and profitability.
Over the last five years, KMP.UN has compounded its revenue, operating income (EBIT), and book value at the following rates:
- Revenue: 7.8%.
- EBIT: 9.5%.
- Equity: 11.7%.
For a REIT trading at 14.4 times funds from operations (FFO), these are adequate rates of growth. Also, the company is involved in M&A activity aimed at continuing the growth into the future.
Now, let’s take a look at profitability.
In the trailing 12-month period, KMP.UN boasted the following profitability metrics:
- A 61% EBIT margin.
- A 40% FFO margin.
- A 61.5% EBITDA margin.
These metrics indicate that KMP.UN is fairly profitable.
Dividend potential
Killam Apartment REIT has about a 4% dividend yield. It pays a $0.06 monthly dividend, which works out to $0.72 per year. The current unit price is $17.94. So, if you invest $50,000 in the REIT, you’ll get $2,000 per year back in passive income, assuming no dividend cuts or raises. Here’s the math on that:
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| Killam Apartment REIT | $17.94 | 2,787 | $0.06 per month ($0.72 per year) | $167 per month ($2,006 per year) | Monthly |
Bottom line
The bottom line on Killam Apartment REIT is that it’s a well run, professionally managed REIT with a lot of income potential. Those buying it today will probably do well.
