Real estate stocks currently make up only a small portion (around 2.1%) of the S&P/TSX Composite Index. However, that doesn’t mean they are not worth investing in. In fact, with growing interest rate cut hopes in the near term, the real estate sector could experience strong gains as lower interest rates tend to increase the affordability of financing for property purchases, which could take property values and rental yields higher. This is one of the key reasons why many real estate stocks look really attractive right now, especially for investors who want to diversify their portfolios and tap into steady monthly passive income through dividends.
Here are two top TSX real estate stocks that I think are worth buying in May 2024 based on their strong fundamentals, growth prospects, and impressive dividend yields.
Chartwell stock
Chartwell Retirement Residences (TSX:CSH.UN) is a Mississauga-based real estate trust with a focus on providing housing options to seniors across Canada, ranging from independent to assisted living and long-term care. The company currently has a market cap of $3 billion as its stock trades at $12.36 per share after rallying by more than 35% in the last year. At this market price, Chartwell stock has a 5% annualized dividend yield and distributes these payouts every month.
In the first quarter this year, Chartwell posted a solid 10.9% YoY (year-over-year) increase in its resident revenue to $183.9 million, due partly to higher rental and service rates. To add optimism, increased income from joint ventures, lower expenses, and higher resident revenue also helped the company report a notable reduction in net loss to just $2.0 million last quarter compared to a loss of $9.3 million a year ago.
Its consistently rising occupancy rates, higher service rates, and continued focus on driving growth through new acquisitions could help Chartwell accelerate its financial growth in the years to come, which can help its share prices continue soaring.
First Capital REIT stock
First Capital REIT (TSX:FCR.UN) could be another top TSX real estate stock long-term investors can consider adding to their portfolios in May 2024. This Toronto-headquartered, retail-focused real estate investment trusts (REIT) currently has a market cap of $3.2 billion as its stock trades at $15.25 per share after surging by around 10% for the last six months. Just like Chartwell, First Capital also distributes its dividend payouts every month and currently has an annualized dividend yield of 5.7%.
The REIT has started 2024 on a solid note as its total funds from operations jumped around 52% YoY in the first quarter to $81.6 million due mainly to robust leasing activity, higher lease termination income, and strong base rents. While its total portfolio occupancy rate remained stable at 96.2%, Chartwell’s same-property net operating income growth rate improved to 7.8% YoY last quarter from around 4% a year ago.
With a focus on driving long-term growth, Chartwell invested nearly $78 million in its properties in the first quarter, including new strategic acquisitions. Moreover, continued strong demand for its grocery-anchored properties and its effective leasing strategies brighten the REIT’s long-term growth prospects, making it an attractive TSX real estate stock to buy now.
