Many investors rely on dividend stocks to generate regular passive income, especially in retirement. While most companies pay dividends quarterly, some distribute cash to shareholders every month. One such company on the TSX is SmartCentres Real Estate Investment Trust (TSX:SRU.UN), an attractive pick for those seeking reliable monthly dividends.
Boasting a high 8.3% dividend yield and a lengthy track record of consistently paying dividends, SmartCentres stands out for all the right reasons. This article discusses why SmartCentres could prove to be an ideal investment if you’re looking to earn recurring monthly passive income.
The Allure of Monthly Dividend Stocks
Before analyzing SmartCentres specifically, it’s important to understand the unique appeal of monthly dividend stocks:
1. Consistent Cash Flows
Monthly dividends lead to steadier cash flows compared to quarterly payments. This makes budgeting easier, especially for investors relying on dividend income to cover living expenses.
2. Faster Compounding
With monthly payouts, dividend reinvestment also compounds faster, accelerating overall returns. This allows a portfolio to grow much quicker.
3. Increased Flexibility
More frequent payments allow for greater flexibility in terms of managing cash flows. Investors can use the regular monthly income for discretionary spending or reinvest it.
4. Enhanced Liquidity
For investors needing cash periodically instead of a lump sum once a quarter, monthly dividends provide greater liquidity to access funds as and when required.
Clearly, monthly dividend stocks offer tangible benefits. Next, let’s analyze why SmartCentres deserves a spot in such an income-focused portfolio.
Why SmartCentres is an Attractive Pick for Monthly Dividends
SmartCentres REIT has an impressive track record of not only paying but also growing its dividend reliably for years, making it a stable monthly income pick. Here are some key factors that make it enticing:
High and Well-Protected Dividend Yield
With a distribution yield exceeding 8%, SmartCentres offers an income stream significantly greater than average dividend stocks on the TSX. But more importantly, its payouts appear sustainable.
Robust Underlying Business Fundamentals
Quality real estate assets across Canada, exceptional tenant profiles, and remarkably high occupancy rates underpin SmartCentres’ ability to deliver steady cash flows to back its high dividend.
Strong Portfolio of Resilient Properties
Owning 191 strategically located properties across Canada provides SmartCentres with a geographically diversified base of assets that generate dependable rental income. Stability is further enhanced by focusing predominantly on retail real estate catering to essential consumer needs.
Balance Sheet Position
With a reasonable debt load and staggered debt maturity profile, SmartCentres boasts a healthy balance sheet position. This provides further assurance that the REIT can maintain existing dividends while financing expansion.
Visible Growth Prospects
Beyond its mature retail portfolio, SmartCentres also has a thriving mixed-use development program. As these projects get completed and rented out over time, they will meaningfully augment cash flows and dividends.
Let’s analyze these factors in greater detail to understand why SmartCentres makes for a compelling investment.
Lucrative 8.3% Dividend Yield Looks Increasingly Sustainable
Offering one of the highest distribution yields in the Canadian REIT sector, SmartCentres catches investors’ attention rather quickly. But even more crucial is evaluating the safety of its juicy 8.3% yield.
And SmartCentres ticks all boxes on that front beautifully. With a sustainable payout ratio of around 85% over the last 12 months, it strikes an optimal balance between rewarding shareholders richly and retaining enough capital to fund growth.
Furthermore, the fact that it could maintain distributions uninterrupted even during the pandemic-induced economic downturn highlights the resilience of its cash flows. With high-quality tenants and minimal bad debt expenses, investors can expect the current yield to persist.
Exceptional Property Portfolio Underpins Cash Flows
At the heart of SmartCentres’ ability to pay reliable high yields lies its unmatched portfolio of mixed-use real estate concentrating heavily on retail properties. Let’s analyze the strengths of its assets and tenants.
Unparallel Scale and Prime Locations
With 10.3 million square feet of rentable area spanning 34.5 million square feet of total space, SmartCentres owns one of Canada’s largest portfolios of retail and mixed-use properties. Impressively, these 191 properties are strategically situated in prime locations close to dense neighborhood populations.
Focus on Essential-Needs Retailing
Unlike some REITs affected by disruptions in discretionary shopping, approximately 65% of SmartCentres’ rental income flows from essential retail tenants, including grocery stores, pharmacies, banks, and medical services. This imparts tremendous resilience.
High-Quality and Diversified Tenant Base
An astounding 95% of SmartCentres’ rental income comes from national and regional retailers. These include highly reputed brands like Walmart, Loblaw, Canadian Tire, and major banks. And no single tenant contributes over 11.7% of its total rental revenues currently.
Exceptional Occupancy Rates
Backed by a robust tenant profile and locations that witness solid foot traffic, SmartCentres’ properties have maintained stellar occupancy rates exceeding 97% historically. Despite retail sector challenges, its core portfolio occupancy rate stood tall at 98.5% as of Q3 2022.
The combined effect of all these attributes is that SmartCentres can count on consistent rental income from its properties each month. This forms a strong foundation to sustain high monthly dividends.
Other Supporting Factors Strengthening Investment Case
Some additional aspects further validate why SmartCentres is well-positioned to deliver attractive total returns with a large income component:
1. Reasonable Leverage Position
The REIT reported net debt to adjusted EBITDA, a measure of indebtedness, at 8.3x at the end of Q3 2022. This relatively modest leverage provides sufficient headroom to continue acquiring properties and funding growth projects.
2. Staggered Debt Maturity Profile
With no major chunk of debt maturing in the near term, SmartCentres enjoys good financial flexibility. Its weighted average term to maturity stood at 4.2 years as of the September quarter end.
3. Value Unlock from Density Intensification
SmartCentres is strategically intensifying usage of its existing properties via multi-family residential and self-storage developments. As these projects get completed over the next decade, they will meaningfully strengthen financial metrics.
4. Healthy Interest Coverage Ratio
In the last 12 months, SmartCentres earned 2.8x the amount of interest expenses, indicating it can easily service debt. This stability enables upholding dividends comfortably.
In summary, SmartCentres presents an attractive risk-reward opportunity. It provides higher yields than practically any other REIT in Canada, and its payouts seem to rest on strong foundations.
Final Thoughts
SmartCentres REIT emerges as a top pick if you desire regular monthly dividend income. It offers an exceptional 8%-plus yield backed by resilient real estate assets, high-quality tenants, and staggered debt maturity.
These qualities provide reasonable assurance that SmartCentres can sustain dividends at healthy levels. Indeed, with inflation eating into fixed income yields, few other investments match SmartCentres’ ability to deliver stable cash flows.
So if you seek recurring monthly passive income, investing a portion of your capital into SmartCentres REIT appears to be a smart choice worth considering today.