Are you a TFSA investor looking for stocks with above-average yields that pay out each and every single month?
If so, real estate investment trusts (REITs) are the pile you want to go looking in. These entities invest in real estate; typically have high dividend yields; and in most cases, pay their dividends monthly. So, if you are looking for high and frequent income, REITs are where it’s at.
With that being said, not all REITs are created equal. Residential REITs sometimes perform poorly when the rental market cools (as it has been doing lately); mall REITs often have to close their properties down, and so on.
Industrial REITs are a different breed. Such REITs own warehouses in which critical activities like manufacturing and logistics take place. With the massive data centre buildout that is underway in Canada, they are also perfectly positioned to get a piece of the AI action. In this article, I will explore one Canadian industrial REIT that has roughly a 4% yield, paid monthly, that could be a worthy addition to a well-diversified TFSA.
Source: Getty Images
Granite Real Estate Investment Trust
Granite Real Estate Investment Trust (TSX: GRT.UN), or “Granite REIT” for short, is Canada’s premier industrial REIT. It invests in most major types of industrial real estate, including:
- Logistics facilities (e.g., fulfillment warehouses).
- Manufacturing plants.
- Multi-tenant business parks.
- Flex/office space.
This diversified mix of real estate categories gives Granite REIT a lot of optionality and the ability to thrive in different economic conditions.
A massive opportunity set
Granite REIT currently has a massive opportunity set in front of it.
The REIT owns 165 properties, has 66.5 million square feet of leasable space, and has a 98% occupancy rate – above average for REITs of all types, and for industrial REITs specifically. The average occupancy rate for a Canadian industrial REIT is 96.1%, so Granite is far above average in this category.
Granite REIT can and does make considerable money off its existing properties. With Canadian exports currently booming, the company’s opportunity set may grow even further.
Geographical diversification
In addition to having a diversified mix of property types, Granite REIT also boasts considerable geographic diversification. The REIT owns properties in Canada, the United States and Europe. Again, this provides it with the ability to make up for weakness in any one area with strength in another – and, of course, to enjoy those periods when times are good everywhere.
Sound financials
Last but not least, Granite REIT boasts sound financials, including:
- A 0.6 debt-to-equity ratio (lower than 1 is considered ideal).
- A 52% adjusted funds from operations (AFFO) margin.
- A 67% AFFO payout ratio.
- A 35% levered free cash flow (FCF) margin.
These are pretty solid financial and profitability metrics, indicating that Granite REIT is a thriving enterprise at the moment.
Dividend potential
Last but not least, we should take a look at GRT.UN’s dividend potential.
The REIT pays a dividend of $0.30 per month, or $3.60 per year. At today’s price of $98.08, that provides a 3.7% dividend yield. This is pretty close to 4%, and the REIT has been raising its payout over time. I’d say those buying GRT.UN today will be collecting a 4% annualized yield, paid monthly, in the not too distant future.
