hey guys it's adrian here the canadian in a t-shirt and today i'll be breaking down the
best canadian reit etfs these etfs pay out a generous dividend and they allow you to tap
into the canadian real estate market with as little as 20 dollars you don't need a hundred
thousand dollars as a down payment on a house instead just buy a few shares of these etfs
and you'll collect reliable passive income every single month and you'll gain a diverse exposure
of the entire canadian real estate market i've already made several videos on etfs
and on reits but today we're going to combine them together for this video i'm going to assume you
know what an etf is what an mer or management fee is and you know the basics of dividends
drips and capital gains if you need a refresher check out my previous videos in my millennial
investing guide especially my etfs explained and then come back to this video basically an etf
is a way to buy hundreds of stocks within one single fund so instead of putting all your
eggs in one basket by investing in one company you're diversifying your portfolio by investing
in a little piece of hundreds of companies all at once a reit is similar but for real estate
a reit is a real estate investment trust and this is a large company that owns hundreds
of properties and rents them out for a profit so instead of putting all your money into one house
you can buy shares of a reit and then you'll own a little piece of hundreds of properties and you
collect your share of the rent every single month a reit etf takes this diversification
one step further a reit etf contains dozens of reits each of which contain hundreds of properties
so with the reit etf you'll be investing in thousands of properties across many different
sectors including retail properties industrial residential and so on that's the true power of
reach etfs you get instant diversification of the entire real estate market all while earning
great dividends every single month for more info check out my previous video reits explained to
learn about the benefits of reits and their investing strategy so without further ado
let's jump into the best reit etfs in canada up first we have an old favorite vre by vanguard
i've already talked about vre in my video on the best dividend etfs in canada almost two years ago
and it's still one of my favorites vre tracks the largest reits in canada across many sectors
and as a capped etf it focuses heavily on the larger and more established reits this
etf contains the 15 largest reits in canada most of which pay out a generous dividend
and so overall vre pays out a solid dividend yield of 2.81 percent paid out monthly this dividend
yield is definitely lower than usual since the share price has grown significantly as businesses
open back up but the dividend hasn't changed since last december and so we can definitely
expect a dividend increase very soon usually vre has a dividend yield above four percent
vanguard is famous for offering the cheapest etfs and since this is passively managed this has the
lowest management fee on this list with an mer of 0.38 percent so if you have a thousand dollars
invested in vre it will only cost you three dollars and 80 cents a year in management fees
that's almost nothing and a fraction of what you would pay for a mutual fund
remember with etfs you'll never see this management fee taken out as a transaction this fee
is built into the share price that you see another way to consider the effect of the management fee
is to subtract it away from the dividend yield so if our dividend yield is 2.81 percent but we pay
0.38% in management fees then our net income is 2.43% for the year of course this doesn't include
capital gains as the value of etf grows this is just the income we obtain every year through
dividends let's calculate the amount you need to qualify for a drip remember a drip allows you
to reinvest your dividend and use it to buy more shares of a company rather than receiving cash and
the best part is you don't pay any commission fees at all when you use a drip to buy extra shares
this is the best way to invest in the long term allowing your dividends to compound automatically
giving you true exponential growth this is especially useful when investing in stocks but
if you're using questrate which is my favorite online broker you don't pay any commission
fees anyway when you buy etfs so a drip won't actually save you any money but it does automate
the compounding growth of your etf rather than having to manually buy an extra share every single
month so if you'd like to sign up with questrade click my referral link in the box below and you'll
receive $50 in commission free trade rebates plus i'll get a small referral bonus so back to vre
with a dividend yield of 2.81 percent and a share price of $37.82 you'll need $16,250 to qualify for
a drip let's break it down with sixteen thousand two hundred fifty dollars invested that two point
eight one percent dividend yield will give you about four hundred and fifty six dollars a year
in dividends or about thirty eight dollars a month the share price of VRE is only thirty
seven dollars and eighty two and so your dividend is enough to automatically buy an extra share and
you'll receive the remaining 20 cents as cash i know 16 000 is a lot of money but remember
you don't need to reach that drip threshold all at once invest what you can and slowly build up to it
over the course of years and you'll be earning great passive income and capital gains along the
way check out my drip explained video to learn how to calculate the drip amount for any stock or etf
so that covers the dividend and the mer but we also want to consider the holdings of this etf
this etf contains 15 of the largest canadian reits and it's well diversified across different sectors
the heaviest weight of 22 is on retail properties like shopping malls and outdoor shopping centers
next with 21 is real estate services these reits don't actually own properties they
just manage them and vre is the only etf on this list with exposure in the services sector
but note that real estate services barely pay a dividend they're more focused on long-term
capital growth so these service rates will bring down the overall dividend yield but they offer
more diversification eighty percent of vre is in residential so homes and apartments seventeen
percent is in office properties nine percent is the industrial sector which includes warehouses
and factories and the rest is a diversified mix looking at the individual holdings we have 15
reits but they aren't individually weighted this etf focuses on the largest reits by market cap
so we can see the largest week in canada canadian apartment properties a residential rate makes up
15 up next we have first service with 13 this is a services rate so it barely pays a dividend
but it has excellent capital growth then you have the large retail office and industrial
reits like RioCan granite allied properties and H&R each with a weight about seven to eleven percent
i've talked about most of these REITs in my video on the best canadian reits so check that out
the remaining nine reits in this fund all have a weight below seven percent with the bottom
four being between one and two percent you can see that this fund focuses heavily on the big players
in fact the top five rates alone make up more than fifty percent of the entire fund if you want more
exposure in the small cap rates the next etf is for you look at the share price over the last five
years you can see a very clear upward trend as you can imagine we saw a massive drop in the crash of
march 2020 with offices and retailers being shut down but it has recovered very quickly and now
it's back to all-time highs and that's the power of real estate there is a limited amount of land
available and so the demand always increases and so with reits and vre you can expect long-term
capital appreciation all while earning reliable income every single month this is important
whenever i'm talking about dividend yield in this video i'm talking about the trailing 12 months or
ttm yield so for vre it has a ttm yield of 2.81 percent that means that if you add up all of
its dividends over the past 12 months and then divide by the current share price you get 2.81
but many etfs don't pay consistent dividends they can change on a month-to-month basis so
it's important to use the ttm yield to give you an expectation of the entire year's dividends
the alternative is to use the forward yield where you assume that the current month's dividend
will continue for the rest of the year but that might not be the case so if the dividend changes
month to month the forward yield will swing up and down in the case of vre its dividend
hasn't changed since december of 2020 so using the forward yield or the ttm yield will be almost the
same but just to be safe i recommend using the ttm yield it's more reliable next up we have zre the
BMO equal weights REIT ETF. ZRE is a little different because instead of focusing on the
largest reits in canada they spread out their fund equally among 21 reits so the smaller reits have
just as much exposure as the large ones giving you a truly diversified mix of the canadian market
zre also pays out a higher dividend yield of 3.91 paid out monthly with ZRE the dividend has
been consistent since february of 2020 and so in this case the ttm yield and the forward yield are
identical but this etf is a little more actively managed and so it's more expensive with an mer
of 0.61 those management fees are on the higher side but the diverse portfolio makes up for it
and if you invest a thousand dollars with zre it will cost you six dollars and ten cents a year
in fees again this fee is built into the share price but i like to take it off of the dividend
income so with a dividend yield of 3.91 and an mer of 0.61 we have an annual net income of 3.3
and with a higher dividend yield it's much easier to qualify for a drip
you'll need about 8 600 invested in zre let's check it out with a yield of 3.91 our 8 600
will give us 336 a year in dividends or 28 a month the current share price is 27.68 so that's enough
to get us an extra share every single month let's look at the holdings of ZRE. ZRE contains 21
reits across all sectors of real estate the heavy sector is retail with 27 followed by residential
with 22 percent industrial is 18 diversified rates are 13 and then we have office properties at nine
percent and finally health care with eight percent you'll notice that this etf doesn't contain any
exposure to real estate services like vre instead this etf focuses more on industrial and healthcare
looking at individual holdings we have 21 reits and they're all equally balanced between four and
five percent of the total fund i'm not going to list all 21 reits but you can see that the top two
holdings are 5.2 percent and the smallest holdings are about 4.5 percent so they're almost equal
compare this to vre where we saw a huge spread with the largest holding being 50 percent and the
smallest being just over one percent in vre the big players like canadian apartments and rio can
were the largest holdings but with ZRE they're actually the smallest this balanced approach gives
extra exposure to the smaller and less established reits which have great potential for growth
but can be more volatile looking at the share price over the past five years we see a very
similar story with short-term volatility but strong overall growth in the long run we saw a
massive drop in the crash of march of 2020 where real estate across the board was devastated but
with every drop this etf was able to recover very quickly and if you were lucky to buy it
at this discount you would already be seeing huge capital gains all while collecting that reliable
passive income every month along the way at number three we have xre from blackrock xre is similar to
vre since it's a capped etf so it focuses most heavily on the largest reits in canada but it
does have some exposure to small cap and mid cap reits as well xre is the oldest reek etf in canada
it's actually twice as old as the other two on this list xre is also the largest by far in terms
of assets under management so it's definitely the industry leader in the canadian market this etf
contains 19 reits spread out across all sectors and it currently pays out a dividend yield of 2.64
paid out monthly this yield is lower than usual since the share price has grown so much over the
past year but it usually has a dividend yield above four percent xre is an example of an etf
which doesn't have the most consistent dividends it can vary throughout the year
xre's dividend was reduced in april and then increased in july so for xre definitely use the
ttm yield not the forward yield since the dividend was recently increased the forward yield is higher
but it's less meaningful just like zre this etf is on the more expensive side with an mer of 0.61 so
if you invest a thousand dollars into xre you'd be paying six dollars and 10 cents every year in fees
so with a ttm yield of two point six four percent and an mer of zero point six one percent you'll
be getting an annual net income of two point zero three percent plus long-term capital gains
to qualify for a trip with xre you'll need about 9 500 invested let's go through the math with 9 500
invested and a yield of 2.64 that gives us about 250 a year in dividends or 20 and 90 cents every
month with a share price of 20 and 64 cents that dividend is enough to get us a free share
every single month let's check out the holdings of xre starting with the sector breakdown this etf
contains 19 reits spread across all sectors of the canadian market with 31 in retail 25 residential
20 in industrial and then we have 11 in diversified properties and then we have the rest
in office properties and health care the order of sector exposure is actually identical to zre
but the actual numbers are quite different with xre focusing even more in retail and residential
and less on the healthcare space and xre has no exposure to real estate services only vre has
that looking at the individual holdings xre has 19 reits and again these are not distributed equally
xre focuses on the largest reits by market cap so we see a very similar portfolio as vre with the
largest by far being canadian apartments Riocan granite and allied properties and just like vre
there is a huge spread between the largest and smallest holdings canadian apartments has a
weight of 15 alone but the smaller reits only have about 1.5 percent again the top five rates alone
make up 50 of the entire fund the biggest difference from vre is that xre doesn't have
service rates remember first service alone made up 13 of vre and looking at the share price over
the past five years we see a very similar story to the other etfs on this list with very strong
long-term growth this etf plummeted during the market crash of march of 2020 but xre was able to
recover very quickly and over this past year we've seen incredible capital gains all while earning
that generous monthly dividend along the way for all these etfs make sure you hold them in your tax
sheltered accounts like your tfsa and your rrsp to avoid paying taxes on those monthly dividends
and capital gains and since these are REIT etfs their dividends are actually called distributions
and so they are taxed differently than regular dividends so to make it easier hold them in your
tax sheltered accounts and check out my reits explained video to learn more about how reach
distributions are taxed in canada so there you have it those are the best reach etfs in canada
vre has the lowest fees and is the only one to focus on reit services zre is the only etf that
is equally balanced giving you exposure to the smaller canadian reits and xre is the oldest and
largest etf in this group and its holdings and sector exposure are a bit of a mix of the other
two i personally own all three of these etfs and even though there's a bit of overlap between them
it's important to diversify and gain exposure of the entire canadian market rather than trying
to pick the best one if you'd like to see exactly which stocks and etfs i'm invested in and to help
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if you're just getting started and to actually buy these etfs i recommend Questrade which is
my favorite online broker since they don't charge you any commission fees at all when you buy etfs
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thanks everyone and i'll see you guys on the next episode of the canadian in a t-shirt bye guys