Monthly Income Investors: A Top REIT Now Yields 6%

RioCan Real Estate Investment Trust (TSX:REI.UN) might be oversold. Here’s why.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Retirees and other Canadian income investors are searching for reliable distributions to add to their portfolios.

Let’s take a look at RioCan Real Estate Investment Trust (TSX:REI.UN) to see why it might be an attractive pick today.

Potentially oversold

RioCan has come under pressure in the past year amid ongoing reports of failing department stores and the threat of higher interest rates. These are certainly issues for investors to watch, but the pullback in the price of the trust units from $26 a year ago to $23.50 might be overdone.

Why?

The company has a diverse tenant base with no single company representing more than 5% of the total revenue. In addition, RioCan continues to see strong demand for its properties, finishing the quarter with committed occupancy at 96.6%.

Each time a major name exits the market, RioCan is able to fill the space. For example, the company found new renters to fill the gap left by Target Canada and already has new new tenants lined up to replace 130% of the revenue lost by the closure of Sears Canada.

The company is in the middle of a strategy shift that will see RioCan sell properties in secondary markets and focus investment on six major cities. In the Q1 earnings release, RioCan indicated it had deals in place for $800 million in properties. The goal is to monetize about $2 billion in assets.

Development

On the growth side, RioCan is moving ahead with its residential mixed-use projects. The company could build up to 10,000 units at its core urban locations over the course of the next decade.

Another area to watch is the emergence of the legal cannabis market. For example, Ontario plans to open 150 cannabis stores by 2020, and a good number of those will find their way into RioCan properties.

Distributions

Investors received a nice bit of news when RioCan raised its distribution last fall. It was the first increase in some time, and indicates that management must be optimistic about the outlook for cash flow, despite the headwinds coming from rising interest rates.

With large mixed-use properties scheduled for completion in late 2018 and early 2019, investors could see another increase in the payout, which currently provides a yield of 6.1%.

Should you buy?

The planned assets sales are going well and RioCan’s remaining properties are in high demand. Given the strong development portfolio, it might be worthwhile for income investors to start a small position while RioCan remains out of favour.

Should you invest $1,000 in RioCan right now?

Before you buy stock in RioCan, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and RioCan wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $21,058.57!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 38 percentage points since 2013*.

See the Top Stocks * Returns as of 2/20/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool Contributor Andrew Walker has no position in any stock mentioned.

If You Thought Apple and Microsoft Were Big, You Need to Read This.

The steel industry produced the world's first $1 billion company in 1901, and it wasn't until 117 years later that technology giant Apple became the first-ever company to reach a $1 trillion valuation.

But what if I told you artificial intelligence (AI) is about to accelerate the pace of value creation? AI has the potential to produce several trillion-dollar companies in the future, and The Motley Fool is watching one very closely right now.

Don't fumble this potential wealth-building opportunity by navigating it alone. The Motley Fool has a proven track record of picking revolutionary growth stocks early, from Netflix to Amazon, so become a premium member today.

See the 'AI Supercycle' Stock

More on Dividend Stocks

The sun sets behind a power source
Dividend Stocks

Outlook for Fortis Stock in 2025

Fortis is up 15% in the past year. Are more gains on the way?

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

Where to Invest Your $7,000 TFSA Contribution 

The investment environment is seeing a shift in 2025. Here is an investment strategy to consider for your $7,000 TFSA…

Read more »

Canadian Dollars bills
Dividend Stocks

1 TSX Stock to Invest $20,000 and Create $835.80 in Passive Income

If you want passive income, you want security. And you can get it with this top-notch dividend stock.

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

TFSA-Ready: 2 Low-Risk TSX Dividend Stars

These safe, dividend-paying stocks could help your TFSA grow faster than you think in the long run.

Read more »

senior man smiles next to a light-filled window
Dividend Stocks

5 Stocks for Canadian Value Investors

These five stocks all trade at compelling valuations, making them five of the best value stocks Canadian investors can buy…

Read more »

Income and growth financial chart
Dividend Stocks

The 2 Best TSX Stocks to Buy Before They Recover

These TSX stocks are the perfect pair for TFSA investors, especially if you're looking for growth in 2025.

Read more »

protect, safe, trust
Dividend Stocks

2 Safer, High-Yield Dividend Stocks for Canadian Retirees

Consider Restaurant Brands International (TSX:QSR) and another fast-food stock for a juicy dividend.

Read more »

Canadian Dollars bills
Dividend Stocks

TFSA Investors: Transform Your Money Goals Into Cash-Gushing Monsters With $10,000

The TFSA is the perfect place to produce major income, and this stock could be the perfect pairing.

Read more »