Besides the huge cash outlay required to get into it, buying apartments as investment properties to generate rental income comes with too many challenges. Happy, Real estate investment funds (REITs) offer you the opportunity to become a lazy landlord.
These trusts are companies that pool capital from investors to own, develop and manage a portfolio of real estate assets. These companies generate monthly income through the portfolio and offer investors monthly returns based on the number of units (or shares) they own.
Real estate companies can be excellent investments for dividend seekers, but also for established, defensive and reliable companies. Today I will discuss one of my top picks for those interested in investing in the Canadian real estate market while enjoying the liquidity of the stock market: Canadian Apartment Properties REIT (TSX:CAR.UN).
The REIT
Canadian Apartment Properties, or CAPREIT, is a $6 billion market capitalization trust that acquires and leases multi-unit residential properties primarily located near major urban centers across Canada. The portfolio mainly consists of apartments and townhouses close to public facilities. The company generates almost all of its turnover from rental income from the rental of real estate to tenants.
CAPREIT is Canada’s largest REIT focused on the residential sector, with thousands of units located in major urban centers across the country. However, at the time of writing, the stock is trading at a discount. The stock is trading at $37.85 per share, down 18.8% from its 52-week high. While such a downturn may be alarming to newer investors, seasoned investors may consider it a bargain.
The highs and lows
No matter how reliable a stock is, it cannot be immune to the impact of broader geopolitical and economic factors. CAPREIT is a reliable and high-quality company that you can invest in with confidence, but which has also had a lot of problems recently. Interest rates have risen high in recent years due to measures taken by the Bank of Canada to combat inflation. However, central banks are cutting interest rates again.
Lower margins have put financial pressure on the company, and that can be attributed to the decline in its share price. However, lower interest rates will provide much-needed relief to margins. Better margins can lead to higher revenues for the REIT. That, in turn, can result in more dividend growth for investors to enjoy.
Silly takeaway
At the time of writing, CAPREIT offers monthly distributions of $0.1292 per share, which translates into a dividend yield of 4.1%. The current dividend yield has been inflated due to the decline in stock prices. Right now could be the ideal time to invest in its shares to capture higher-than-average yielding dividends, as the average has been 3.1% in recent years. If you’re building a portfolio of monthly dividend stocks, CAPREIT could justify a place in your holdings.
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