In today’s uncertain economic climate, more investors are looking to the stock market to generate reliable streams of passive income through dividends. Many prefer stocks that pay monthly dividends as an easy way to supplement active income sources or save and grow capital. One such company catching the eye of income seekers is SmartCentres Real Estate Investment Trust (TSX:SRU.UN).
Why Monthly Dividends Appeal to Investors
For investors seeking to generate regular passive income, stocks with monthly dividend payments offer more frequent payouts than the traditional quarterly schedule. This appeals to those using dividends to cover regular living expenses in retirement or supplement variable active incomes.
David Richmond, a financial advisor, explains the appeal, “Monthly dividends allow investors to better sync their portfolio payouts with monthly expenses. Rather than waiting every 3 months for a lump sum, they receive smaller payments each month providing more consistent cash flow.”
Monthly dividends also allow for faster compound growth when dividends are reinvested. Says Richmond, “When reinvesting dividends to grow your share count, monthly payouts can be put back to work faster, accelerating your income growth.”
Real Estate Investment Trusts Offer Attractive Dividend Yields
Many monthly dividend payers are real estate investment trusts or REITs. These special tax-advantaged companies must pay out most profits directly to shareholders as dividends. In exchange, REITs pay no corporate tax on earnings, resulting in higher dividend yields.
SmarCentres REIT is one such company offering monthly payouts and a yield of 8% – well above average stock market yields. But Richmond cautions investors to look beyond just high yields when evaluating REITs and other dividend stocks.
“You want to choose companies with strong underlying businesses and solid balance sheets that can actually sustain those dividends long-term through various business cycles,” he says.
Why SmartCentres Stands Out Among REITs
With a portfolio of over 170 retail properties across Canada, SmartCentres has maintained average occupancy rates exceeding 97% even amidst COVID-19 shutdowns. Its tenant base is highly defensive with Walmart, Loblaw, Canadian Tire and other essential retailers accounting for 57% of rental income.
SmartCentres has also been expanding into residential real estate, adding apartment rentals and seniors’ housing on underused sections of existing retail properties.
“This is fueling reliable growth and adds diversification. Residential tend to be more stable revenue streams balancing out the retail side through recessions,” comments Richmond.
Funds from operations (FFO), a key REIT profitability metric, has grown at a CAGR of 4% since 2015. The REIT maintains a reasonable debt-to-EBITDA ratio of 9.4x, in line with industry averages indicating financial health.
Building a Passive Income Stream with REITs
For investors interested in using stocks like SmartCentres to build durable passive income streams, Richmond suggests a few guidelines:
- Focus on quality over yield – Choose resilient companies with strong management and competitive advantages in their industry. Don’t just chase unsustainably high yields.
- Diversify – Build a portfolio of at least 10-15 stocks across various sectors to mitigate risk. Don’t concentrate too heavily in just 1-2 stocks.
- Reinvest dividends – To grow income over time, reinvest dividends by purchasing additional shares. This takes advantage of compounding.
- Use registered accounts – Hold dividend stocks in TFSA, RRSP, or RESP accounts to shelter dividends from being taxed.
As an example, investing $100,000 across a diversified portfolio of 15 dividend payers averaging 5% yield could generate $417 per month in passive income. That could grow to $667 monthly in 10 years with dividend reinvestment.
While dividends are never guaranteed and carry risk like any investment, a prudently constructed portfolio of companies like SmartCentres can provide investors with growing passive income.