Income investors are searching for sustainable yield that doesn’t come with too much risk.
Let’s take a look at RioCan Real Estate Investment Trust (TSX:REI.UN) and A&W Revenue Royalties Income Fund (TSX:AW.UN) to see why they are attractive picks.
RioCan
RioCan operates more than 300 shopping centres across Canada.
Online shopping has some pundits concerned that brick-and-mortar retail is headed for trouble, and that might be the case for some sectors such as electronics, but Canadians still prefer to get in their cars to go buy the products they need on a daily or monthly basis.
Think about it. How many people do you know are going to buy milk and eggs, cold medicine, a new coffee mug, or a replacement snow shovel online?
RioCan’s anchor tenants tend to be stores that sell stuff like groceries, drugs, discount items, and common household goods, so there is little risk they will go out of business anytime soon.
The company reported solid Q2 2016 numbers. Funds from operations (FFO) rose $8.8 million, or 8.1%, on continuing assets. This accounts for the company’s recent disposition of its 49 U.S. properties.
Management plans to use the $1.2 billion in proceeds from the sale of the American assets to strengthen the balance sheet and invest in new opportunities.
One project to watch is the company’s intention to build residential units at its core urban locations. The idea is still in the early development stage, but if the concept takes off, RioCan and its investors could see a nice bump in revenue in the coming years.
RioCan pays a monthly distribution of 11.75 cents per unit. The payout should be safe and provides a yield of 5%.
A&W
A&W’s tasty offerings have been popular with Canadians for decades, and the chain continues to grow despite the intense competition in the burger market.
What’s going on?
A&W is distinguishing itself from the competition by promoting its healthy ingredients.
The company’s ads say the beef used in the burgers is raised without the use of hormones and the chicken the company serves is raised without the use of antibiotics. MMMMM!
You might not think the marketing team is firing on all cylinders, but the strategy seems to be working as fast-food fans continue to flock to the company’s restaurants.
The chain currently has 858 stores in the royalty pool and another 23 in the process of being built or acquiring permits.
Same-store sales in Q2 2016 rose 2.7% compared with last year and 5.4% for the first half of 2016.
Management recently raised the monthly payout to $0.133 per unit. That’s good for a yield of 4.5%.
Is one a better bet?
Both companies have enjoyed strong rallies in 2016, so neither one is particularly cheap right now.
RioCan’s growth trajectory is still being ironed out, and investors haven’t seen a boost in the payout for quite some time. As a result, I would probably go with the burger chain as my first pick.
