Investors can benefit from rising real estate by acquiring stocks of real estate investment trusts (“REIT”), which own, manage, or finance income-producing properties. REITs generate income by leasing and collecting rent. These companies distribute the income to shareholders as dividends. REITs must pay a minimum of 90% of their taxable income to shareholders as dividends. So, I believe REITs would be an excellent buy for income-seeking investors.
Meanwhile, investors should be careful while making investment decisions. They should look at the quality of the assets that a REIT owns, its debt exposure, tenant base, lease longevity, and customer diversification to access these companies. Considering all these factors, here are my three top picks.
NorthWest Healthcare Properties REIT NorthWest Healthcare Properties REIT (TSX:NWH.UN), which owns and operates health care facilities spread across seven countries, is my first pick. Its portfolio includes 224 properties covering 17.6 million square feet. Given its defensive and diversified health care portfolio, long-term contracts, and government-backed tenants, the company’s occupancy and collection rate remain higher irrespective of the economic cycle.
As of December 31, the company’s weighted average lease expiry stood at 14.5 years. Also, a substantial percentage of its rent is inflation-indexed, which is encouraging. Further, the company recently raised around $172.5 million to partially fund the acquisition of health care real estate in the U.S. for $764.3 million. Further, the company is also looking at expanding its footprint in Australia, U.K., Europe, and Canada. So, given its reliable cash flows and high-growth prospects, I believe NorthWest Healthcare’s dividends are safe. It currently pays a monthly dividend of $0.06667, with its forward yield at 5.8%.
RioCan REIT RioCan REIT (TSX:REI.UN) has outperformed the broader equity markets this year, with close to 9% returns. The company’s portfolio consists of 207 retail and mixed-use properties, with a total net leasable area of 36.4 million square feet. The company’s occupancy rate stood at 96.8% last year. Further, the weighted average lease expiry of its income property portfolio stood at 26 years as of December 31.
Meanwhile, RioCan’s has a solid development pipeline. It has zone approval for 38 projects, forming an area of 13.8 million square feet. The company expects to deliver 1.7 million square feet of these development projects over the next two years. So, given its healthy growth prospects, diversified portfolio, and long-term contracts, I expect RioCan’s cash flows to be stable and reliable in the coming years. So, its dividends are safe. The company currently pays a monthly dividend of $0.085 per share, with its forward yield at 4.12%.
SmartCentres REIT SmartCentres REIT (TSX:SRU.UN) owns 174 properties that form an approximate area of 34.1 million square feet. The company has been growing its assets at a CAGR of 27.7% since 2002. Currently, it earns around 60% of its income from strong, creditworthy, essential service tenants. Further, Walmart (NYSE:WMT) alone contributes approximately 25% of its total revenue. Its occupancy and collection rate stood at 97.6% and 98%, respectively, during the December-ending quarter.
Meanwhile, the company has announced Project 512, a $15.2 billion intensification program, which would increase its portfolio by 58.6 million square feet, with 28.6 million square feet expected to begin construction over the next five years. So, its outlook looks healthy. Given its high occupancy and collection rate, solid and diversified tenant base, and healthy growth prospects, I believe SmartCentres REIT is well-positioned to continue paying dividends at a high yield. Its forward yield currently stands at a juicy 5.75%.
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The Motley Fool recommends NORTHWEST HEALTHCARE PPTYS REIT UNITS and Smart REIT. Fool contributor Rajiv Nanjapla has no position in any of the stocks mentioned.