Motley Fool Canada Chief Investment Officer Iain Butler is calling SmartCentres REIT (TSX: SRU.UN) a ‘perfect’ stock to buy and hold in a TFSA for years to come. Hear him explain why in less than five minutes.
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Nick Sciple: I’m Motley Fool Canada Senior Analyst Nick Sciple, and this is The Five-Minute Major, here to make you a smarter investor in about five minutes. Today we discuss what could be one of the best TFSA stock options for your monthly passive income. The company is SmartCentres REIT, Walmart’s landlord across Canada. My guest today is Iain Butler, Chief Investment Officer of Motley Fool Canada. Iain, thanks for joining me.
Iain Butler: Always a pleasure to be here.
Nick: If you’re looking to add reliable monthly income to your TFSA right now, and many people do, why do you think SmartCentres REIT is a strong candidate to have on your radar?
SmartCentres REIT is a ‘perfect, perfect, perfect’ idea for TFSA investors
Iain: That’s right, and rightly so. It’s a great tool that we Canadian investors have, the TFSA, and this is a perfect, perfect, perfect idea to just stay in there and leave it alone for years to come. So SmartCentres is anchored in needs-based retail activities, and these activities provide tremendous stability in most, in almost all, economic environments, barring a pandemic, which we hope we won’t see again. Even then, this is a company that will pass relatively unscathed. So strong results have been achieved recently. They have an industry leading occupancy rate of 98.6%.
And the dividend yield is currently around 6.7%, which is a dividend paid monthly.
The tenant base is, as indicated, super resilient and anchored by major brands that perform well regardless of economic background. These are brands that people go to every day, day in and day out.
The big name behind this company is Walmart. SmartCentres was actually born to be Walmart’s landlord when Walmart came to Canada so many years ago. Walmart remains the main tenant of this company, and this is in the interest of SmartCentre. They have a very unique relationship there.
Growth potential for SRU.UN and its dividend
Beyond retail, this is a REIT that has expanded elsewhere. They recently opened three new self-storage units, bringing the total to 14, and are in the process of residential development. They own a large tract of land on the north side of Toronto, the town of Vaughan. They have a condo tower, which is already 93% pre-sold. This accommodation is directly adjacent to a newly built public transport hub. There is a new metro stop there. This is kind of the next step in the evolution of SmartCentre, this development of kind of mixed-use real estate.
Nick: You talked about SmartCentre’s strong history of dividend payments, really great numbers when you look at what you want from a REIT: great tenants. Looking to the future of renters looking to spend more in Canada, Walmart recently announced a $6.5 billion expansion. What does that mean for SmartCentre unit holders?
Iain: This is a story anchored by Walmart. Walmart accounts for about 23% of the rental income for SmartCentre. And Walmart is building dozens of new stores, starting with five supercenters in 2027.
This will only drive strong tenant demand and foot traffic to these properties.
Walmart’s strategy builds on a previous $3.5 billion modernization investment, and shows that Walmart will continue to grow, and that they will involve SmartCentre. So this is a great combination of an excellent current dividend yield of 6.7% and a significant opportunity for continued growth in those dividends, but also just on a company basis, which is a perfect fit for holding on to the TFSA and just leaving it alone.
Nick: That’s right, so if you’re looking for monthly income, this might not be the biggest player in your portfolio in terms of percentage returns, but reliable income checks every month, with really a growth story still intact.
Iain, thank you so much for joining us for this edition of The Five-Minute Major. Reminder to our viewers: If you want more stock ideas from us, click the icon at the top right of your screen. Thanks for joining us for this episode of The Five-Minute Major. I hope to see you next time.
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