Can I control my returns from the money invested in stocks? Most people procrastinate stock market investing because of uncertainty around returns. The fact that you will have to part ways with your money for a long time without any assurance of what you will get after years of staying away is not something many are comfortable with.
Stock market investment carries the risk of the business. The shares you buy givs you proportionate ownership in the business. However, some businesses are sure to generate cash flows. And the business structure makes it profitable to share most of its income with shareholders in the form of dividends. The real estate investment trust (REIT) is one such business structure.
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The preferred dividend sector for monthly payouts
A REIT need not pay taxes if it passes on maximum income to its unitholders. If they retain any earnings, they are charged the highest tax rate on net income. Thus, you don’t see retained earnings and tax provisions in a REIT’s balance sheet.
When the business is structured for guaranteed payouts, you know you can get assured returns from REITs. The payout starts from the very next month you invest. However, even REIT investments carry the risk of distribution cuts and, in the worst-case scenario, a dividend pause if a significant amount of leased space remains vacant. After all, it is the rent that a REIT is passing on as distributions.
Thus, whenever you invest in a REIT, look at the occupancy rate and the creditworthiness of its tenants. When you know rent is sticky, occupancy is high, and tenants won’t default, the dividends can give assured returns.
A 6.2% dividend stock that gives an assured monthly payout
SmartCentres REIT (TSX: SRU.UN) is one such REIT. It has been building and leasing retail spaces since 1989. At the heart of SmartCentres is its long relationship with Walmart. They brought Walmart to Canada, developing 176 Walmart stores across the nation between 1989 and 1994.
The next phase of growth in the early 2000s was building retail stores around Walmart. The Walmart-anchored stores brought tenants like Canadian Tire and Loblaws. Today, 40% of SmartCentres’ rental income comes from the top 10 tenants, with 23% from Walmart alone. SmartCentres gets more than 99% of rental income without any defaults and enjoys over 98% average occupancy. All this shows that SmartCentres is a good investment to earn predictable payouts.
The current phase of growth is building city centres around Walmart stores. This city centre will have townhouses, condos, office spaces, self-storage facilities, and retail spaces. Some of them, mostly residential properties, are being sold for capital gain, and some are being leased. The REIT derives its unit value from the value of its properties after deducting debt. The net asset value per unit is $36.19, but the unit is trading at $30.35. The lower unit price has increased its annual dividend yield to 6.2%.
SmartCentres REIT has been paying $0.15 per month in dividends for the last six years. It does increase its dividends when the property markets are booming. In a market where property prices corrected significantly and many REITs slashed dividends, SmartCentres’ sustained dividend shows its resilience.
How much should you invest to get $50 every month?
Once you know the monthly payout and unit price, you can control the returns you need. For a $50 monthly dividend, you need to buy 329 units of SmartCentres REIT, which will cost you $10,000 at the current trading price.
| Stock | Purchase price | Investment Amount | Number of shares purchased | Dividend per share | Monthly Dividend Amount |
| SRU.UN | $30.35 | $10,000.00 | 329.4892916 | $0.154 | $50.72 |
You can either invest $10,000 in one go or over the next 10–12 months as and when you have money. You can also use the dividend money or any capital gains from selling another stock to buy more units of the REIT. Such reinvesting and rebalancing is tax-efficient in a Tax-Free Savings Account as investment income is not taxed whether withdrawn or reinvested.
