For income investors, finding a stock that offers a larger payout is always near the top of any shopping list. But there’s far more to understand than just opting to chase a bigger yield, and there’s always another stock with an even higher payout.
Fortunately, there’s more than the payout to consider when deciding on whether to stick with an investment or chase a bigger yield.
One stock that I prefer to own right now is SmartCentres (TSX: SRU.UN). Not only is it one of the larger REITs in Canada, but it also offers an appetizing monthly distribution that’s backed by a solid and growing business.
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SmartCentres has the tenants
SmartCentres’ portfolio consists mainly of essential retail property sites located across metro markets in Canada. That gives the REIT a source of recurring foot traffic that is hard to replace, even when times get tough for consumers.
Even better, Walmart anchors many of those properties, drawing foot traffic that also benefits smaller tenants on the site.
That’s part of the reason why the REIT reported an in-place and committed occupancy rate of 98.1% at the end of the second quarter. That’s an important figure that investors often overlook.
That occupancy number helps to explain whether a landlord’s properties are attracting tenants. Occupied space generates rent to help cover the bills and fund the monthly distribution, while committed space may not yet be generating rent.
Empty properties still have bills, but they generate no rent to cover them.
In the most recent quarter, SmartCentres leased nearly 247,000 square feet of vacant space. The REIT also extended 86% of its leases scheduled to expire in 2026. Those renewals carried rent increases of nearly 6.6%, including anchor tenants and 12% excluding anchor tenants.
Overall, same-property net operating income (NOI) registered a 2.6% uptick over last year.
For investors, this means not only does SmartCentres have an occupancy across its properties of 98%, but it’s also renewing existing tenants at higher rates.
That’s encouraging for investors who aren’t looking to chase a bigger yield elsewhere.
Higher rents need to reach the payout
As of the time of writing, SmartCentres pays a monthly distribution of $0.15 per unit. That works out to $1.85 per year, or a yield of 6.9%. That’s among the highest yields on the market right now among Canadian REITs.
For investors with $25,000 to drop into SmartCentres, that works out to a little over $140 each month. And for those who aren’t ready to draw on that income yet, that monthly distribution represents a handful of new units generated each month from reinvestments alone.
That’s an attractive income generator, but it’s not perfect.
SmartCentres’ payout ratio is just over 86% of adjusted funds from operations. That doesn’t leave much room for increases. And for many investors looking for current income, that could be fine.
Why I wouldn’t chase a bigger yield
SmartCentres is in a unique position. Some of the best-known and most stable retailers on the market anchor its properties, giving consumers a place to shop for essentials.
The properties are diversified across the country in metro markets, and they are near fully occupied.
Throw in a generous monthly distribution, and you have one of the better-paying options for income investors on the market.
In my opinion, there’s no need to chase a bigger yield. SmartCentres is a great add-on to any well-diversified portfolio as is.
