3 Cash Cows for Passive Income Investors

Passive income investors can consider taking positions in three high-yield cash cows from the real estate sector.

Supermarket aisle groceries retail

Image source: Getty Images

Canada’s housing market remains red-hot despite the looming start of the interest rate hike cycle. Apart from the unprecedented sales growth, prices or home valuations have risen exponentially. The affordability crisis could continue if housing supply stays low.

Meanwhile, investors who want exposure to real estate need not buy or make direct investments in physical properties. Real estate investment trust (REIT) investors are growing in numbers because the asset class is full of passive income providers, if not cash cows.

The standouts today are Slate Grocery (TSX:SGR.U), BTB (TSX:BTB.UN), and Automotive Properties (TSX:APR.UN). Prospective investors become pseudo-landlords of prime real estate and earn rental-like income.

Low-risk business model

Slate Grocery is a top choice of risk-averse investors because the business model is low-risk. This $907.3 million REIT owns and operates high-quality properties in the United States. About 96% of the 107 properties in 23 states are grocery-anchored assets. The best part to investors is the exposure to the world’s largest grocers, including anchor tenants Kroger and Walmart.

As of September 30, 2021, the occupancy rate is 94.4%, not yet including completed acquisitions in Q3 2021. According to management, it was the fifth consecutive quarter of increased occupancy. The acquisition of 25 quality grocery-anchored properties on September 22, 2021, was transformational and the largest single acquisition by a multiple of four.

The real estate stock trades at $15.32 per share (+6.83% year-to-date) and pays a 7.17% dividend.

Strategic growth

BTB is absurdly cheap ($4.04), yet it pays an eye-popping 7.43% dividend. This $297.9 REIT leases properties (office, retail, and industrial) in eastern and western Canada. Among its top and high-profile tenants are the Public Works & Government Services Canada and the provincial government of Quebec.

The portfolio across all asset classes and geographic regions displayed stability, notwithstanding the challenging environment. According to management, rent collections after the first three quarters of 2021 were more than 99%, or 99.2% of the cumulative rents for the year. BTB has yet to report last year’s results, where the REIT’s asset valuation top $1 billion, a major achievement in its history.

Over the next five years, BTB’s goal is to double the value of its total assets through strategic and intelligent growth.

Unique REIT

Automotive Properties is growth-oriented but a unique real estate asset class. The $709.71 million REIT owns automotive dealerships across key markets in Canada. Auto dealers in the 66 income-producing properties carry 32 global brands. Their target customers are from the mass market segment to high-end, luxury brands.

The leasing profile is very attractive owing to the overall leasing maturity. As of September 30, 2021, the lease portfolio matures between 2026 and 2040. Also, the strong underlying fundamentals of Canada’s automotive retail industry makes this REIT an exciting investment option.

The pandemic had a negative impact on sales, although the industry’s recovery didn’t take long. Net income after the first three quarters of 2021 reached $75 million compared to the $3.21 million net loss in the same period in 2020. At $14.48 per share, APR.UN pays a hefty 5.55% dividend.    

Not a pastime anymore

Earning passive income through dividend investing is no longer a pastime but a necessity in 2022. Taking positions in cash cows from the real estate sector could help investors cope with rising inflation.

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 Christopher Liew has no position in any of the stocks mentioned. The Motley Fool owns and recommends AUTOMOTIVE PROPERTIES REIT.

More on Dividend Stocks

dividends can compound over time
Dividend Stocks

Want a 7% Yield? The 3 TSX Stocks to Buy Today

These TSX stocks are offering high yields of over 7%, making them attractive for investors seeking steady passive income.

Read more »

how to save money
Dividend Stocks

The Smartest Dividend Stocks to Buy With $200 Right Now

These smartest dividend stocks can consistently pay and increase their dividends in the coming years, irrespective of the macro uncertainty.

Read more »

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

3 Utility Stocks That Are Smart Buys for Canadians in November

These utility stocks benefit from regulated businesses and generate predictable cash flows that support higher dividend payouts.

Read more »

Start line on the highway
Dividend Stocks

Invest $10,000 in This Dividend Stock for $600 in Passive Income

Do you want to generate passive income? Forget the rental unit! This option will save you the mortgage yet still…

Read more »

Senior uses a laptop computer
Dividend Stocks

1 Reliable Dividend Stock for the Ultimate Retirement Income Stream

TD Bank (TSX:TD) shares are way too cheap with way too swollen a yield for retirees to pass up right…

Read more »

A worker drinks out of a mug in an office.
Dividend Stocks

Is Brookfield Infrastructure Partners a Buy for its 4.75% Yield?

Brookfield Infrastructure Partners (BIP) has a 4.75% dividend yield. Is it worth it?

Read more »

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

Where to Invest Your $7,000 TFSA Contribution

The TFSA is attractive for investors who want to generate tax-free passive income.

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Dividend Stocks

TFSA Investors: 3 Dividend Stocks Worth Holding Forever

These TSX stocks have the potential to grow their dividends over the next decade, making them top investments for TFSA…

Read more »