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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12 Comments

  1. Mike on November 21, 2011 at 8:59 pm

    Since REIT’s are viewed as dividend machines it would be interesting to see an additional column in the table showing not only the stock yield, but the total return (yield plus reinvested dividends).

  2. Kanwal Sarai @ Simply Investing on November 21, 2011 at 9:55 pm

    Great post! The yields on these REITs are awesome. I do have RioCan, but am looking to add H&R if the price is right 🙂

  3. VanLarry on November 22, 2011 at 4:31 am

    Mike: REITs don’t normally do dividends. They’re distributions and they depend on the REIT for what kind of tax column they go under. Usually it’s a little of Capital gains, then Other Interest, then Return of Capital(RoC). Other Interest are taxed 100%, Capital gains are 50% taxable, and RoC is very interesting in calculating the tax.

    Pity Echo didn’t mention about the tax efficiency about these.

    You could however just ignore the tax implications by dumping them into TFSA or RRSP.

  4. the Paperboy on November 22, 2011 at 12:26 pm

    As VanLarry mentioned, REITs distribute a handful of different ways. This is why I plan to move mine REITs into my TFSA next year. This way I don’t even have to think about it.

    Picking up RioCan at $15 is insane! I wish I was into investing at that time. Everybody seems to have picked up a lot of bargains.

    Do any of you guys DRIP your REITs? I would like to but because of the monthly distributions, I have to invest a lot more in order to get enough to purchase a share for a synthetic DRIP.

    • Echo on November 22, 2011 at 2:50 pm

      @the Paperboy – I’m only receiving $14.95 per month from RioCan, which is not quite enough to set up the DRIP.

    • VanLarry on November 23, 2011 at 4:32 am

      the Paperboy: I use to have one of the smaller ones, Whiterock on DRIP under my TFSA at TDWaterhouse.

      Until I screw up when I attempt to make the synthetic DRIP into a true DRIP. I requested a certificate, but the procedure for TD was to withdraw the shares out of the TFSA which was not clear to me at the time. My impression was the shares will be directly under my name, held by TDWaterhouse. So I canned DRIP to get cash. Worst yet, the withdraw of the shares was in the middle of the distribution. So I get that month’s DRIP, which TDWaterhouse leaves in the TFSA. So now I’m stuck with a few shares in my TFSA, collecting a few cents every month AND the rest of my shares declared in a certificate, collecting cash every month.

      The whole point of me trying to get a true DRIP was to save up further on fractions of a share. Oh well, another expensive hard lesson learned.

      When the new year comes, I’m gonna dump my shares back into the account, hopefully it works to my advantage via lower price/share. I’m think I’ll be happy with just the synthetic DRIP TDCanadatrust offers. It’s just too much work to do DRIP on your own. The taxes.

      Speaking of taxes, I’m not sure if RevCanada counts this as a disposition of capital–IF I transfer shares to my TFSA. In my view, since I’m not selling nor am I transfering to another entity/person, then it’s not a disposition. Anybody know?

      • Boomer on November 23, 2011 at 7:43 pm

        @VanLarry: To answer your question, you can transfer shares from a non registered account into a TFSA “in kind”. For tax purposes, you will be considered to have disposed of the shares at the fair market value and you will have to report any capital gains (but you can’t claim any capital loss).

  5. Andrea Ross on November 25, 2011 at 8:59 am

    Are there any issues with putting REITs into an RESP? Just wondering.

    • Echo on November 25, 2011 at 10:02 am

      @Andrea – no issues. REITs are 100% eligible as Canadian content for registered portfolios.

  6. Stephen on November 27, 2011 at 11:43 am

    I have owned a core position with XRE for the last 3 years & traded a smaller number of shares. Great returns & the beta is very low. Easy to read chart for technicals. Getting paid monthly is an attractive feature. For those that do not want a market weight REIT ETF like iShares XRE then take a look at BMO’s equal weight REIT ETF – ZRE. RioCan has a 6% weighting.

    • Echo on November 27, 2011 at 12:15 pm

      @Stephen – thanks for the info on ZRE.

  7. tom on May 4, 2012 at 7:58 pm

    is it too late to buy reit now?
    or when it’s time to get out, when interest rates start to rise?

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