Strong from my series on Canadian REITs in 2011, I’m going back this year with 4 top picks on the best Canadian REITs for 2012. I think that it’s important that you don’t get blinded by the attractive yields of REITs and decide to invest all your money in them. On the other hand, since the Canadian economy seems stable, the banking system is solid and interest rates should not go up by much in 2012 (most recent stats on inflation in January 2012 shows a 2.3% annual rate), Canadian REITs seem to be a logical addition to your portfolio. And this is good for US investors too, as there are 2 things you should have in your investment portfolio from Canada: Canadian banks and Canadian REITs.
- Dividend Yield: 3.40%
- Dividend 5 Yr Growth Rate: 7.39%
- Payout % (FFO): 67.50%
- Payout % (AFFO): 76.2%
- Debt-to-GBV (Gross Book Value): 46.3%
At first glance Boardwalk REIT may sound uninteresting compared to its peers, due to its low rate (most Canadian REITs are able to pay a dividend of 5+%). However, BEI is also showing a very low FFO and AFFO payout as well as a conservative debt to GBV value. In other terms, the BEI dividend payout is lower, but is definitely one of the most sustainable over a long term period. BEI is expected to continue raising its dividend in 2012 and the following year. With one of the highest 5 year dividend growth rates in the industry, it is definitely my favorite pick for the moment.
- Dividend Yield: 5.20%
- Dividend 5 Yr Growth Rate: 1.64%
- Payout % (FFO): 93.20%
- Payout % (AFFO): 104.50%
- Total Debt to Assets: 47.80%
Riocan is the largest REIT in Canada. Their strong property management skills allow them to maintain a 97.5% occupancy rate. Their size is also a great strength since Riocan is well diversified across Canada (14.9% of the properties are in Quebec, 11.3% in Alberta, 5.6% in BC with a stronghold of 54% in Ontario) and they also have a presence in the US (10.7% of their portfolio). If you pick Riocan, you do it for its stability and its size. However, do not expect much growth as the dividend growth rate is far from being impressive, and the FFO and AFFO payouts are relatively high.
- Dividend Yield: 5.00%
- Dividend 5 Yr Growth Rate: 3.63%%
- Payout % (FFO): 60.90%
- Payout % (AFFO): N/A
- Debt-to-GBV (Gross Book Value): 47.90%
If you compare NPR to REI, you will immediately understand that you have 2 stocks with a similar yield but a different approach. NPR is much smaller than Riocan but the FFO payout and dividend growth are much stronger. As the name suggest it, NPR is focused in Northern Canada and Alberta (Anybody heard of Fort McMurray?). Northern properties is the only Canadian REIT to be part of the S&P/TSX Dividend Aristocrats list. If we can expect oil sand exploration in northern Canada (and Alberta), we can expect NPR to continue to benefit from its dominant position in this niche market.
- Dividend Yield: 6.60%
- Dividend 5 Yr Growth Rate: 3.54%
- Payout % (FFO): 92.3%
- Payout % (AFFO): 94.7%
- Debt-to-GBV (Gross Book Value): 54.6%
Another completely different REIT, Cominar is mainly based in Quebec (with a few properties in Ottawa’s region as well). CUF is currently in negotiation to buy Canmark. The valuation of this REIT will greatly depend on the outcome of this deal. In the meantime, CUF is offering a huge dividend yield (6.60%) with acceptable REIT metrics. In addition to that, their occupancy rate is at 93.60% which is pretty good considering the economy in Quebec.
Do you have any interest in a Canadian REIT?
I’m currently out of cash to invest right now but if I had a few thousand, I would definitely put it on Boardwalk, due to its sustainable business model. Do you have any Canadian REITs in your portfolio? What do you think is the right percentage of your holdings to allocate to this sector?