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The REIT Stuff: Why RioCan Might Be Your Next Dividend Darling

Pixelated acronym REIT made from cubes, mosaic pattern
Image source: Getty Images

Written by Demetris Afxentiou at The Motley Fool Canada

Buying a rental property remains one of the best ways to generate a recurring income stream. At least, that was the case until interest rates priced many would-be landlords out of the market. Fortunately, there is hope for investors that comes in the form of this dividend darling.

The REIT stuff

REITs (Real Estate Investment Trusts) are companies that own and manage real estate properties. Often, a REIT can include dozens, if not hundreds of properties, making it a well-diversified option to consider.

Additionally, REITs often branch out across several segments of the real estate market. This can include residential, commercial, office, or even industrial properties. Again, it adds to the diversification appeal of investing in REITs.

Perhaps best of all, REITs, particularly if investors choose the right one, could be a dividend darling for your portfolio.

The REIT for your portfolio

The REIT for investors to consider right now is RioCan Real Estate (TSX:REI.UN). RioCan is one of the largest REITs in Canada. The REIT, which has a portfolio of over 190 properties across Canada, has both commercial retail and mixed-use residential properties.

On the commercial side, RioCan counts some of Canada’s largest retailers as its tenants.

In recent years, RioCan has focused on increasing its mixed-use residential properties, and for good reason. Changing consumer habits and a push to mobile-first commerce means less foot traffic to shopping malls.

At the same time, the increasing unaffordability of homes and the lack of supply is making the residential market more appealing. For RioCan, it represents a huge opportunity to redevelop commercial properties into new residential properties or sell lesser-performing ones.

RioCan Living is what this REIT calls that residential segment. It consists of residential towers sitting atop several floors of commercial retail. The sites are situated in Canada’s major metro areas, along high-traffic transit corridors.

In total, the company boasts over 190 properties in total across all segments and continues to boast an occupancy rate of 98.3%.

The next dividend darling for your portfolio

One of, if not the main, reason why investors continue to flock to RioCan is the incredible dividend it offers. As of the time of writing, RioCan offers investors a monthly distribution that carries an impressive yield of 6.26%.

To put that earnings potential into context, let’s consider a $40,000 investment (which is considerably less than a recommended down payment on a rental property). For that initial investment, investors can expect to generate a monthly income just shy of $210.

Now, keep in mind that there’s no mortgage, property taxes, maintenance costs, or even the need to chase down tenants to collect rent. And even better, investors who aren’t ready to draw on that income yet can choose to reinvest it.

That fact alone makes RioCan a hard-to-ignore dividend darling for any investor. It also makes the REIT a very viable alternative to owning a rental property.

Final thoughts

No investment is without some risk, and that includes RioCan. In fact, rising interest rates have impacted much of the market, including RioCan, which dropped 14% in the trailing 12 months.

Fortunately, this dividend darling does offer a juicy income and a well-diversified (and growing) source of revenue. In short, RioCan is well suited to weather the current storm of market volatility. Until then, prospective investors can see this as an opportunity to pick up a great dividend darling at a decent discount.

In my opinion, RioCan is a great long-term holding that should form a small part of every well-diversified portfolio.

The post The REIT Stuff: Why RioCan Might Be Your Next Dividend Darling appeared first on The Motley Fool Canada.

Should You Invest $1,000 In RioCan?

Before you consider RioCan, you'll want to hear this.

Our market-beating analyst team just revealed what they believe are the 5 best stocks for investors to buy in October 2023... and RioCan wasn't on the list.

The online investing service they've run for nearly a decade, Motley Fool Stock Advisor Canada, is beating the TSX by 25 percentage points. And right now, they think there are 5 stocks that are better buys.

See the 5 Stocks * Returns as of 10/10/23

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Fool contributor Demetris Afxentiou has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

2023