Hey guys, it is Adrian here, The Canadian in a T-shirt.
And today, I will be breaking down the best Canadian REITs for dividends to invest in
2021, and beyond.
These REITs will allow you to tap into real estate through the stock market and take advantage
of discounted prices and high monthly dividends.
In this video, I am only going to be talking about Canadian REITs.
I will save US REITs for a later video.
These are REITs that I am personally investing in, especially right now during this market
downturn.
With the pandemic, the real estate market has been hit hard.
So now is a great time to buy these REITs at a huge discount and when they recover,
we'll earn great capital gains plus we will enjoy reliable passive income every month
along the way.
If you do not know what a REIT is, make sure you check out my REITs Explained video,
where I go over what are REITs?
The benefits over owning traditional real estate, how REITs are taxed?
And investing strategies.
So click the pop-up at the top right to watch that first and then come back to this video.
As a super quick summary, a REIT is a company that owns hundreds or thousands of real estate
properties and rents them out for a profit.
And just like a regular stock, you can buy shares of a REIT through the stock market.
By investing in a REIT, you are investing in hundreds of properties all at once, and
every month you collect a portion of that rent through dividends.
REITs generally pay higher dividend yields than regular stocks and as a bonus, they usually
pay out their dividends every month.
Not every quarter.
They are one of the best sources of passive income out there, especially in a TFSA or
RRSP account to maximize that tax-sheltered growth.
I have already talked about some of my favorite REITs in previous videos, including Riocan,
Allied Properties, and Chartwell Retirement.
So click the pop-up at the top right, check out those videos.
What I said then, still holds today and I am continuing to invest in each of those REITs,
especially at these discounted prices.
For this video, I only want to talk about new REITs to my channel and only those that
I personally own.
And stick around until the end, I will be talking about one of my longtime favorite
REITs and the important news and changes that are going on with it.
So with that, let us jump into the best Canadian REITs for passive income.
Let us start with one of the largest Retail REITs in Canada, SmartCentres.
Ticker Symbol: SRU.UN.TO.
SmartCentres is a Retail REIT.
So they owned large shopping centers.
And the individual stores are their tenants who pay them rent.
Instead of targeting indoor shopping malls, this REIT focuses on open-air shopping centers
and plazas.
This is good news because open-air stores are more likely to remain open during a pandemic
than stores enclosed within a shopping mall, even better.
The majority of tenants of SmartCentres are essential businesses.
So even during the lockdown, they remain open and pay rent.
In fact, over seventy percent of SmartCentre's properties are anchored by Walmart.
Which is by far the biggest and busiest retailer.
Not only is Walmart and essential business since it is considered a grocery store, but
having a Walmart attracts customers to the shopping centers, so the other stores gain
business as well.
This allows the REIT to charge higher rent since any store would want that higher traffic
of customers.
SmartCentres are also home to many staples of Canadian retail, including Loblaws, Shoppers,
Best Buy, Dollarama, and Costco.
Even during a pandemic, SmartCentres continues to be profitable and they pay a very generous
dividend of seven point six percent, paid out monthly.
This dividend yield is definitely higher than normal because, throughout the year, SmartCentres
maintained its dividend but the share price fell hard during the crash in March 2020.
We are seeing this happen in many dividends, especially in REITs.
The dividend amount is unchanged but the share price has dropped, and now the dividend yield
is much higher, and this is a great opportunity to take advantage of.
If you buy shares of SmartCentres today, you will be buying them at a thirty percent discount
off of their normal price before the crash.
And that is what I have been doing.
When it comes to dividends, we want to ensure their sustainability by looking at the stock
payout ratio, but when it comes to REITs, this is not the best metric.
Remember for my REITs Explained video, I discussed how net income or earnings is not
the best way to evaluate a REIT, since it does not account for the depreciation of its
properties.
When it comes to REITs, you should look at the funds from operations or FFO instead.
The FFO is much more representative of the true cash flow of a REIT.
So to tell if a dividend is stainable, we look at the FFO payout ratio.
This ratio is essentially the dividends per share, divided by the funds from operations
per share.
In the case of SmartCentres, they have an FFO payout ratio of seventy-two percent.
That means that only seventy-two percent of the income from regular business activities
goes out to investors as dividends, leaving the company with twenty-eight of its operating
income to buy more properties and grow.
Many REITs have an FFO ratio above eighty or ninety percent.
So this tells us that SmartCentres dividend is definitely sustainable even with its higher
dividend yield.
In fact, SmartCentres have increased its dividend every year for the past six years.
And with its reduced share price, it is now easier than ever to qualify for a DRIP.
Remember, a DRIP allows you to reinvest your dividend and buy more shares of the company,
rather than receiving cash.
And the best part is you do not pay any commission at all when you use the 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.
In the case of SmartCentres, you only need about thirty-nine hundred dollars right now
to qualify for a drip.
That is awesome.
But let us check the math.
With a dividend yield of seven point six percent, our thirty-nine hundred dollar investment
would give us two hundred and ninety-six dollars a year in dividends or twenty-four dollars
and seventy cents per month.
SmartCentres currently has a share price of twenty-four dollars and twenty-four cents.
So every single month our dividends will allow us to purchase an extra share for free and
then we receive the remaining forty-six cents as cash.
Remember this drip amount is so low right now because the share price is so low.
Once the share price returns to their normal range
The amount required to qualify for a drip will also increase so keep that in mind.
To find out how I calculated the amount required to qualify for a drip, click the pop-up on
the top right to
Check out my DRIP video where I go over the long-term benefits of DRIPs and I provide
a useful Excel spreadsheet that you can use to calculate the DRIP amount for any stock
you want.
Looking at the stock price of the past ten years, you can definitely see some ups and
downs, but it usually hovers between thirty and thirty-five dollars.
With retail REITs, we do not expect too much capital appreciation.
We care more about earning passive income but since the market crash in March 2020,
we are at prices lower than we have seen this decade.
So when the stock finally does recover will earn some great capital gains.
It will take months or even a year to recover.
But until then, we will still enjoy those dividends every single month.
At number two, let us look at another retail rate, but this one is much more specialized.
It is CT REIT.
Ticker Symbol: CRT.UN.TO.
CT stands for Canadian Tire, which is by far their largest tenant.
In fact, over ninety percent of CT's rent comes from Canadian Tire stores or Canadian
Tire gas stations.
This is actually when the newest REITs in Canada.
It was only formed in 2013, but already it is showing remarkable dividend growth and
consistency.
And a big part of that is the security of the Canadian Tire.
Canadian Tire is a true staple of Canadian life.
It is never going away.
No matter what season or what is going on in the world, we can always rely on Canadian
Tire for car repairs, and parts, tires, tools, home appliances, sporting goods, you name
it and they have got it.
It was such a reliable tenant at their back, CT REIT been able to perform well year after year,
and pay a generous dividend yield of five-point one percent paid out monthly.
This REIT is currently paying at a twelve percent discount from its highs before the
crash, but it is recovering nicely.
And while you are waiting for the share price to climb to new highs, you can count on the
secure monthly dividend.
CT REIT has an excellent FFO payout ratio of only sixty-six percent which is very low
for a Retail REIT.
Even with such a high dividend, it is definitely sustainable.
In fact, CT REIT has increased its dividend every single year since it was created.
That is seven straight years of dividend growth and they just increase their dividend again
in September 2020, even in the middle of a pandemic.
With a track record like this, we can definitely expect another dividend increase in 2021.
So how much do you need for a drip?
With the share price of fifteen seventy and a dividend yield of five point one percent,
you will only need thirty-seven hundred dollars invested to qualify for a drip.
Let us check it out.
The five-point one percent yield will give you a hundred and eighty-nine dollars a year
in dividends, or fifteen seventy-two a month.
That is enough to buy yourself a free share of CT REIT every single month without paying
any commission.
That is twelve free shares a year.
This REIT was only formed in 2013, so we can only look back on seven years of history.
In this time, you have seen a nice upward trend with two noticeable drops, stock mark
correction we had in December 2018, and the market crash of March 2020.
In both cases, CT was able to recover very quickly.
And right now we are in the middle of that recovery.
We are almost back but now it is still a fantastic opportunity to buy the stock at a discount
and enjoyed those monthly dividends.
At number three, let us move away from the retail sector and talk about the residential
REIT.
Canadian Apartment Properties are also known as CAPREIT.
Ticker Symbol: CAR.UN.TO.
Canadian Apartments is not only the largest residential REIT they're the largest REIT
of any kind in Canada with a market cap of almost nine billion dollars.
As the name suggests, CAPREIT invests in large multi-home rental properties including townhouse
suits and high-rise apartment buildings, and rents them out to people to live in.
They own and operate over sixty-five thousand homes across Canada.
And they even own several thousand homes in Ireland and the Netherlands as well.
And even during the pandemic, they have been able to maintain an excellent occupancy rate
of ninety-eight percent.
So even in the worst of times, they have secured and growing revenue coming in allowing them
to pay out a respectable dividend of two point seven paid out monthly.
This dividend is definitely lower than other REITs on this list.
But this REIT also has incredible capital appreciation going for it, especially right
now, as stock is trading at a twenty percent discount from its highs back in March.
Canadian Apartments has an amazing FFO payout ratio of only fifty-nine percent.
This leaves the REIT with so much cash after dividends to invest in more properties and
grow as a company.
With such a low payout ratio, these dividends are definitely secure and will continue to
increase.
In fact, CAPREIT has increased its dividend every single year for nine years straight
and you can count on another raise in 2021.
Since this REIT has a smaller dividend and a larger share price, it will take a lot more
money to qualify for a drip with this REIT than the other ones on this list.
With the current share price of fifty-one dollars and a definite yield of two point
seven percent, you will need about twenty-three thousand dollars invested to qualify for a
drip.
I know that is a lot, but let us run the numbers, with a yield of two point seven percent, your
twenty-three thousand dollar investment would get you six hundred twenty-one dollars a year
in dividends, or fifty-one seventy-five a month.
That is enough to get you a free share of CAPREIT every single month.
I know twenty-three thousand dollars is a lot of money to pour into one stock, but do
not worry.
You do not need a drip to reap the benefits of this REIT.
Just invest what you can and you will earn solid capital appreciation as well as passive
income.
Looking at the stock price over the past ten years, you can see a remarkably inconsistent
upward climb with only a handful of dips.
But every time the REIT was able to recover in a few months.
The market crash of 2020 was definitely the largest drop in this REITs history.
But it is already well on its way to recover.
Invest now to take advantage of this rare discount and enjoy considerable capital gains
as well as monthly dividends.
At number four, let us look at an extremely diversified REIT called H&R REIT.
Ticker Symbol: HR.UN.TO.
H and R are well balanced between retail, residential, and office properties, as well
as a little bit of industrial exposure.
H and R used to be most heavily focused in the retail sector, especially indoor shopping
malls, but in the past few years, they have expanded into more multi-use properties, especially
residential.
And now, they are one of the largest truly diversified REITs in North America, and they
are also diversified geographically.
The largest chunk of the properties are in Ontario, in the big cities, but there also
will spread out among the other promises as well and they even have a sizable investment
in the United States.
And they are continuing to grow and develop properties in the US, particularly in Florida,
Texas, and the southern states.
With so many streams of income for many different sectors, H and R can support a very generous
dividend of five point five percent paid out monthly.
And right now, this stock is trading at a massive forty-two percent discount from its
highs back in March.
This is a great opportunity to take advantage of its increased dividend yield and the future
capital gains once the stock finally does recover.
Even better, this is one of the safest dividends you can count on with an FFO payout ratio
of only forty one percent.
That is incredible and one of the lowest payout ratios in the whole industry.
It is important to note that H and R cut the dividend by half back in May 2020 in the middle
of the pandemic.
That is why its payout ratio is so low.
Back in May, their dividend was twice as large with an even lower share price.
And so they were offering a dividend yield well over ten percent and that is definitely
too good to last.
But even though the dividends are cut in half, they are still offering a very generous dividend
yield of five point five percent.
And with such a historic low payout ratio, it is only a matter of time before they increase
this dividend.
With its high dividend and reduce share price, it is easier than ever to qualify for a drip
with H and R. With a share price of twelve dollars and sixty cents, you will only need
twenty-eight hundred dollars invested to qualify for a monthly drip.
With twenty-eight hundred, your five point five percent dividend, it will be a hundred
and fifty-four dollars per year or twelve eighty-three a month.
That is enough to get you a free share of this read every single month.
That is twelve free shares a year.
Look at the share price of the past ten years.
You can see several fluctuations, but overall it is pretty steady.
With a REIT like this, we normally would not expect capital appreciation would care more
about the dividends, but with prices lower than we have seen this whole decade after
the crash in March 2020, this is a fantastic opportunity to earn capital gains once the
stock recovers.
In the meantime, we can sit back and collect that monthly passive income.
I also want to talk about one of the most popular routes out there and one that I get
asked about all the time and that is Brookfield Property Partners.
Ticker Symbol: BPY.UN.TO.
Brookfield is one of the largest REITs in North America with a diverse portfolio across
Canada, the US, and all around the world.
They also offer a generous dividend.
They were hit hard during the market crash.
So many investors, myself included, invested heavily in Brookfield during this crash, to
take advantage of these discounted prices.
Like the other REITs on this list, my strategy was to buy a cheap and undervalued and hold
on to it for months or years until recovered, earning myself fantastic capital gains as
well as dividends along the way.
Unfortunately, for us, Common Folk, the parent company, Brookfield Asset Management had the
same idea and they started buying back their shares at this discount and now just two weeks
ago.
They announced that they want to buy back all of the shares.
Taking this REIT private and taking it off the stock market.
Nothing is decided just yet.
The board is still considering their offer.
If you are already invested in Brookfield, the parent company is offering to buy off
your shares for twenty-one dollars Canadian per share.
That is why you have seen the stock price jump recently.
If you are like me and you bought your shares at the low point around fifteen dollars, you
can sell your shares right now and make a nice profit, or you can keep holding on to
some of your shares.
There is a chance the deal might not go through, or they might make an even better offer in
a month or two and you continue to earn those dividends while you wait.
I will talk more about what I am doing with my Brookfield shares in my members-only videos,
but I just want to mention this here for new investors interested in Brookfield.
Again, this is one of the most popular REITs out there.
But right now I would not recommend buying any more shares of BPY.
The current price is already higher than what they are offering in the deal.
So now is not a good time to get in.
But if you already own shares, you might want to consider selling.
For all these REITs, make sure you hold them in your tax-sheltered accounts like your TFSA
and RSP, to avoid paying taxes on these dividends.
In my REITs explained video, I went into detail on how REIT dividends or distributions are
taxed and why should hold them in your TFSA or are RRSP accounts?
This will save you a huge headache when you file your taxes and it will allow your REITs
to grow and compound much faster, tax-free.
Check out my Canadian tax videos to learn how the TFSA and RRSP accounts work when it
comes to investing.
If not sure how to actually buy these rates, close the pop-up on the top right to watch
my Questrade tutorial where I give a step by step walkthrough on how to buy stocks and
ETFs using Questrade, my favorite online broker.
If you would like to get started with Questrade, click my referral link in the box below and
you will get fifty dollars in commission-free trade rebates for the first thirty days when
you sign up.
That basically means that your first ten stock trades will be commissioned free.
That saves you fifty dollars, plus I will get a small referral bonus as well.
And since we are only dealing with Canadian REITs here, you can also use WealthSimple
trade which does not charge you any commission fees when you buy stocks or ETFs.
WealthSimple trade is a great platform if you stick to only buying Canadian stocks,
and it is great for beginners who want the lowest fees possible.
However, when buying US Stocks, it will cost you a lot in conversion fees.
When buying US Stocks, you should use Norbert's Gambit with Questrade to avoid these conversion
fees.
But for Canadian REITs like this video, WealthSimple trade is great.
And if you use my referral link down below, you will get a twenty-five dollar cash bonus,
when you sign up and trade at least one hundred dollars worth of stocks or ETFs.
So there you have it.
Those are some of my favorite Canadian REITs to invest in for passive income.
SmartCentres and CT REIT are pure retail REITs offering a very generous monthly dividend
and are very easy to qualify for a drip.
Canadian Apartment is a residential REIT focusing on capital growth as well as dividends.
And H&R is a truly diversified REIT across all sectors offering great dividends and trading
at a huge discount.
If you would like to see exactly which REITs I invested in beyond the ones in this video
and to help support my channel, hit the join button down below.
To gain access to my exclusive videos, like my TFSA portfolio reveal, and to see exactly
which stocks on buying every single week.
But remember, do not just blindly follow a random guy on YouTube.
Everyone has their own financial goals and circumstances.
Do not just copy what I do, but I hope that seeing my portfolio might offer some guidance
and help you get started.
Thanks for watching guys, and be sure to like, comment, and subscribe, if you found this
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Thanks, everyone, and I will see you guys on the next episode of the Canadian in the
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Bye guys.