Top 3 Canadian REITs For 2020 – And Why RioCan Is Not Part Of It

Most retirees love REITs because their sole purpose is to distribute as much money as possible to their units holder. This sounds like music to the ears of those who are looking for a nice paycheck coming into their bank account every single month (or quarterly). But one must be careful and make sure the REIT chosen will be able to sustain its dividend payment, but also to increase it. This is why I’ve built this Canadian REITs ranking. This top three should give you the guidelines you need to select the right REIT for your portfolio.

Why I Won’t Talk About RioCan… for Long!

You’re going to be disappointed. My top three doesn’t include RioCan REIT (REI.UN.TO) (OTC: RIOCF). Let’s see why it should not be in your portfolio.

RioCan’s yield is huge and the REIT is well established. It owns retail REITs across Canada and RioCan is super strong. Management decided to not let shareholders down and maintain its dividends.

From there, it would be tempting to focus on the yield and to tell me: “Oh, Mike, you’re losing such a great opportunity if you don’t look at RioCan right now!”

Let’s analyze it with a different angle. Over the past 10 years, your paycheck increased by 4.3%. Let me say that again. The REIT loved by any retiree has only increased its dividend by 4.3% in 10 years total.

Would you settle for a job with an annual raise under 0.5% year after year for the next 10 years? This is what RioCan offers you! Your dividend is getting eaten up by inflation.

Plus, stock price comes with another bad news. It hasn’t done much before the pandemic and is now below $15. Again, you are losing on the dividend side because inflation is increasing faster than that.

“But Mike, the inflation is at 1% a year, you’re worrying for nothing.”

Look at your grocery bill: inflation is clearly higher than that. As a retiree, you might not buy houses, computers or cars every year; but groceries and utilities costs will continue to grow at a higher rate than 1%. You’re putting your money and your retirement at risk. This is why we are not in love with RioCan at Dividend Stocks Rock.

Finally, I don’t think that shopping malls will thrive in the future. RioCan has to find other growth vectors, which is going to be hard. Even though they have more than that, those shopping malls will stay and they will probably stay empty too…

Video Length: 00:17:06

3. The Active REIT: InterRent (OTC: IIPZF)

  • Company Name: InterRent REIT
  • Ticker: IIP.UN.TO
  • Dividend Yield: 3.43%
  • Dividend growth since: 2014
  • Distribution: Monthly

(Click on image to enlarge)

Business Model

InterRent Real Estate Investment Trust (IIP.UN.TO) is a growth-oriented real estate investment trust engaged in increasing unitholder value while creating a growing and sustainable distribution through the acquisition and ownership of multi-residential properties. The company operations are carried out throughout the region of Canada. IIP is mostly active in the provinces of Ontario and Quebec. Their primary market shows 7,864 suites while their secondary market is at 1,534 suites.

Investment Thesis

IIP is what we describe as an “active REIT” where the company actively buys, improves and recycles properties. This was a very smart business model to manage in two growing provinces (Ont and Qc) in the past few years. InterRent seeks to acquire properties that have suffered from the absence of professional management. This is how it can buy at a lower value and “easily” improve their investment. Although IIP seems to show a solid business model, keep in mind things weren’t so peachy during the 2008 financial crisis. There seems to be lots of hype around this stock lately. The recent stock drop offers an interesting opportunity.

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