Investors are seeking higher yields these days.  With savings accounts and GIC’s paying next to nothing, and government bonds yielding around 2%, yield hungry investors, including baby boomers approaching retirement, are looking to other investments for their income needs.

One sector that’s been on a great run over the past three years is the Canadian Real Estate Investment Trust market.  Even after the rally, most Canadian REIT’s are still paying juicy yields over 5%.  For investors looking for stable monthly income from their portfolio, Canadian REIT’s are definitely worth a look.

Here are the top 10 Canadian REIT’s, by market cap:

Name Symbol Market Cap Price Yield 10 Yr Return
RioCan REIT REI.UN $6.8B $25.17 5.50% 12.47%
H&R REIT HR.UN $3.5B $22.48 5.00% 7.64%
Calloway REIT CWT.UN $3.2B $26.45 5.90% 33.90%
Boardwalk REIT BEI.UN $2.4B $50.26 3.60% 18.13%
Cdn. REIT REF.UN $2.3B $34.58 4.10% 12.55%
Dundee REIT D.UN $2.0B $32.36 6.80% 11.68%
Primaris Retail REIT PMZ.UN $1.6B $20.00 6.10% n/a
CAP REIT CAR.UN $1.5B $20.61 5.20% 5.98%
Cominar REIT CUF.UN $1.4B $21.85 6.60% 10.06%
Allied Properties REIT AP.UN $1.2B $23.94 5.50% n/a

I primarily invest in dividend growth stocks, but I have always held a couple of REIT’s in my portfolio for exposure to the real estate sector.  I picked up 130 shares of RioCan for under $15 back in 2009, which at the time was nearly yielding nearly 10%.  Then in early 2010, I added Cominar REIT to my tax free savings account at a yield of 7.3%.

Consider a REIT ETF

Investors who are looking to increase their real estate allocation but don’t want to buy individual holdings should consider purchasing a REIT ETF.

The iShares XRE Index Fund is made up of 13 Canadian REIT’s and seeks to replicate the performance of the S&P/TSX Capped REIT Index.  XRE currently trades at $14.91, has a yield of 4.99%, and carries a management expense ratio (MER) of 0.58%.  The largest holding is RioCan, which makes up nearly one-quarter of the fund.

The problem I have with the ETF approach is that I could get similar exposure owning the top 3 or 4 Canadian REIT’s directly, for much cheaper than holding a fund like XRE.  Owning the top 4 REIT’s directly would be the equivalent of holding nearly 55% of the index.

A Good Time To Buy REIT’s?

Canadian REIT’s have averaged returns of more than 25% per year since 2009.  Normally that would be a signal for investors to stay away and wait for better valuations before jumping into this sector.

However, business conditions are still favourable for REIT’s to flourish.  Interest rates continue to remain low, which will keep the cost of borrowing down.  Canadian REIT’s have also been posting strong occupancy rates and, in the case of RioCan, have been gobbling up cheap assets south of the border.

Right now, yields for REIT’s are about 3% higher than government bond yields, meaning REIT investors are being well compensated for taking on additional risk.  Even at these price levels, REIT’s are tempting for yield hungry investors.


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