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REITs (real estate investment trusts) are a popular choice for regular passive income-seeking Canadians. They are a more intelligent and affordable way to invest in real estate. Investors also prefer REITs because they allow them to diversify their portfolios quickly without worrying about managing or financing the properties independently.
However, selecting the best REIT investments, particularly in this inflationary market, is challenging because one must ensure that income growth keeps up with inflation levels. This article will take a closer look at some Canadian REITs to buy on the TSX.
Best Canadian REITs to buy on the TSX
Top 3 Canadian REITs to buy on the TSX Right Now
Morguard North American Residential REIT is one of the best REIT investments to consider right now. It is a closed-end real estate investment trust with a diversified portfolio of nearly 190 hotels, residential, office, retail, and industrial properties across Canada and several other states located south of the border, totaling approximately 16.9 million square feet and 17,460 residential suites with a book value of $19.4 billion.
Unlike most REITs on TSX, which have lost a significant amount of value this year, Morguard has lost only about 6% this year and about 16% over the last year and is currently trading at an attractive valuation. Such resiliency could be attributed to the company’s management and investment in some of the most high-quality, well-located, geographically diverse assets in the North American region. It also has a proven management platform that ensures long-term prosperity to the REIT through the generation of substantial risk-adjusted returns.
Moreover, Morguard is quite financially sound too. The company’s latest quarter financials have been pretty good. It reported a 26.7% increase in the funds from operations and a net operating income jump to $141,736 million from $134,545 million generated in the previous year. Notably, the REIT had $12.1 billion worth of assets by the end of the quarter and has a forward dividend yield of 4.07%.
Many regions where Morguard has properties are improving, particularly those located south of the border. The improvement is a combination of the lifting of COVID-related restrictions and an increase in travel demand among the general public. The REIT’s investments should fetch higher returns in the near term, indirectly improving the investor’s return. The REIT closed on August 23 at $17.17, and the average target on its stock is $22, which is a potential upside of over 28%. Add the dividend yield and look at gains in the early 30% range.
2. Dream Industrial
Dream Industrial Real Estate Investment Trust’s portfolio comprises 257 industrial assets totaling approximately 46 million square feet of leasable area in key North American markets. It is steadily expanding its presence in strong European industrial markets as well.
Dream Industrial has an attractive market dividend yield of 5.63%. The REIT has been in the market for about ten years and has regularly offered steady dividend payouts. After losing more than 26% of its value this year, the REIT has entered an attractive valuation in this inflationary market. It is thus a lucrative investment option for those who intend to earn through passive income in the current times.
The REIT’s primary focus is on warehouses and assembly spaces associated with industrial use. It has long-term lease agreements involving such properties, so its cash flows will not be adversely affected even if a recession occurs. Its primary clientele will always require storing products regardless of ongoing market conditions.
Aside from that, Dream Industrial is extremely growth-oriented and has steadily expanded over the years through acquisitions worldwide. Notably, this REIT has improved its financial position even in the face of deteriorating market conditions. For example, despite a decline in e-commerce use, the REIT’s net income increased 147% yearly to $65.9 million compared to $26.2 million in the earlier year. However, as the Net rental income decreased by $0.8 million relative to the prior year, diluted FFO per unit was flat relative to Q2 2021 at $0.38 per unit.
The REIT closed on August 23 at $12.08; its average target price is $15.97, a potential upside of over 32%. Add the dividend yield, and your returns are almost 38%.
3. Canadian Apartment
Canadian Apartment Properties REIT is one of Canada’s largest REITs. It has $17 billion in assets and a portfolio of 67,000 housing units. As the name suggests, Canadian Apartment primarily focuses on apartment properties, but it also has some land lease communities in its portfolio. Besides, most of these properties are owned by the REIT itself, while some are managed on behalf of third parties.
Currently, the Canadian Apartment REIT is quite attractively priced after losing around 20% since the beginning of this year. It is also a Dividend Aristocrat with a dividend yield of 3.10%. Yet most investors have been considering it over the years because of its capacity for providing capital appreciation rather than dividend payments, as its dividend yield is on the lower side compared to some of the top-performing REITs on TSX.
The best thing about the Canadian Apartment is its solid long-term growth across all metrics. Despite consistent economic challenges, this month, it also posted strong operating results depicting a 2.1% increment in Net operating income and a 1% increment in Net Fund from operations. The Net Month Average Rent also increased by 3.3% compared to last year’s levels. Moreover, the strong liquidity in its balance sheet indicates the company will be able to continue with its acquisition quests in the coming times, enabling it to boost its income largely.
Since investing in Canadian real estate properties is challenging, most investors’ primary motivation for investing in REITs is to quickly generate indirect income from real estate markets. All of the REITs on TSX listed above will provide good earning opportunities and are therefore appealing baits. They have the potential to deliver high-quality returns in the coming years, making them good buys in the current market. However, investors who intend to invest in these Canadian REITs should always conduct their research and independently assess the suitability of their investments beforehand.
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