Real estate investment trusts (REIT) are an excellent place to look for passive income. REITs collect rents on a monthly basis. To maintain tax efficiency, they distribute most of that rent right back to unit holders in the form of a monthly distribution.
REITs are a great way to get exposure to real estate without the hassle of owning that real estate directly. While real estate may seem like a passive investment, it is not. It requires a lot of management. Likewise, it is very costly to transact, and you require a lot of capital to buy it.
You don’t have any of those problems with REITs. They are professionally managed. They buy properties that most individual investors couldn’t afford on their own. Most of them pay attractive dividends that are pretty predictable. If I was looking to add some REITs, here are two of the best to buy right now.
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Granite REIT: Top industrial real estate
Granite Real Estate Investment Trust (TSX: GRT.UN) is one of the best ways to get exposure to modern e-commerce and logistics facilities across North America and Europe. You get 61.5 million square feet of quality space in strong markets with high grade tenants (like Amazon, Magna, and Wayfair)
The REIT is sitting with 98.1% occupancy and an average lease term over five years. Over the past five years, it has grown adjusted funds from operations per unit (a key metric of cash flow) by an 8.4% compounded annual growth rate (CAGR). Yet, the stock returns don’t reflect its quality growth.
Granite has a premium balance sheet with low debt leverage. This provides ample flexibility. It can be opportunistic with buybacks when the stock is cheap and be acquisitive when its stock is better valued.
This dividend stock yields 4%. Granite has increased its distribution for 15 consecutive years. It raised its distribution by 4.4% this year.
Even after its distribution, this stock is yielding over $100 million of excess cash every year. This just means the REIT can continue smartly expanding its portfolio while maintaining its balance sheet. Its stock has recently pulled back, and it looks like a decent time to make a long-term position.
Chartwell Retirement: A dividend stock with serious growth potential
Like Granite, Chartwell Retirement Residences (TSX: CSH.UN) is best in class in its sector. With 30,500 units, it is the largest provider of senior’s retirement communities in Canada.
Canada is aging. A surge of retirees are contemplating downsizing today. They are looking for communities with a combination of care and lifestyle options. Over the past few years, the company has done a great job repositioning its portfolio to newer, higher quality assets that have elevated rental growth potential.
Likewise, it has stabilized its portfolio where average occupancy is floating over 95%. Any incremental demand should translate into improved rental rates over time. With a strong development pipeline, Chartwell will expand to meet that demand.
In its most recent quarter, Chartwell delivered its 12th consecutive quarter of double-digit funds from operations per unit growth. Analysts believe Chartwell could deliver double-digit compounded annual growth to 2027.
Yet, Chartwell trades at a considerable discount to American peers. This REIT yields 3% today. It just increased its distribution for the first time in several years. While you don’t get the largest dividend yield, its business is growing and compounding value. Now is a great time to have this REIT as a core part of your income portfolio.
