SmartCentres Real Estate Investment Trust (TSX:SRU.UN) stands out among Canadian REITs for its remarkably high monthly dividend yield of 7.4%, making it a solid choice for income investors.
Overview of SmartCentres
SmartCentres is a fully integrated real estate provider focused on developing and managing retail and mixed-use properties across Canada. With assets valued at $10 billion, it is one of the largest REITs in Canada.
The REIT owns 165 high-quality properties comprising 34.7 million square feet of leasable area. Over 90% of SmartCentres’ rental income comes from national and regional retailers including Walmart, Loblaw, Canadian Tire, Costco, and other essential service providers.
Such strong tenant relationships and focus on necessity-based retail have enabled SmartCentres to maintain exceptionally high occupancy rates exceeding 97% despite macroeconomic challenges. This stable income generation supports the REIT’s generous payouts.
Key Highlights About SmartCentres’ Dividends
- Attractive high yield: SmartCentres pays a monthly dividend of $0.154 per unit, which translates to $1.848 annually. At the current unit price of $24.53, this represents a 7.4% dividend yield – among the highest in its peer group.
- Monthly payouts: The REIT distributes dividends every month, providing investors with steady passive income. This contrasts with most companies that pay dividends quarterly.
- Long history of dividend payments: SmartCentres initiated dividends in 1999 and has grown its payouts at a 6% compound annual growth rate historically. It has never cut dividends even during economic downturns.
- Sustainable payout ratio: The REIT pays out nearly 94% of its adjusted funds from operations (AFFO) as dividends. While a high payout ratio, it is sustainable given the stability of SmartCentres’ cash flows.
- Dividend increases expected: Management aims to grow distributions by 2-3% annually over the long term, offering investors upside from both high current yield and future growth.
What Supports SmartCentres’ Strong Dividends?
SmartCentres generates predictable rents from its high-quality tenant base. Its occupancy cost ratio – the portion of tenants’ sales utilized for rent – remains a low 13.5%, providing a cushion for future rent hikes.
The REIT also has over 10 million square feet of density rights for residential and self-storage development. Monetizing these assets can power further growth.
Prudent capital management and access to diverse funding sources ensure financial flexibility allowing SmartCentres to support its distributions.
The REIT has $1.3 billion in liquidity available through its unsecured credit facilities. It also has well-staggered debt maturities with no major repayment obligations in the near term.
Overall, SmartCentres boasts a solid A- credit rating, signaling its stability. The management team led by CEO Mitchell Goldhar has significant ownership in the REIT and remains aligned with delivering robust unitholder returns.
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Why SmartCentres Offers Attractive Value for Income Investors
With bond yields rising globally, SmartCentres’ 7.4% yield is highly compelling for income-focused investors. It provides significantly higher income than GICs, bonds, savings accounts, and most dividend stocks.
The payouts are well covered by SmartCentres’ predictable cash flows. Thus, the risk of distribution cuts remains low barring an unprecedented economic shock. This makes the REIT a reliable passive income generator.
Trading at 14x FFO, SmartCentres is attractively priced compared to similar REITs at over 18x. The valuation discount combined with its strong growth prospects makes SmartCentres an intriguing pick for income and upside.
The Bottom Line
SmartCentres’ high-quality portfolio, exceptional occupancy rates, and relationships with strong national retailers support a generous and sustainable dividend yielding 7.4%.
For income investors, especially retirees needing regular passive income, SmartCentres offers an excellent balance of monthly cash flow and capital preservation. The REIT remains well positioned to continue delivering robust total returns with dividends serving as a significant component.