Monthly dividend stocks might be a bit on the overrated side, especially considering how simple it can be to divide a quarterly payout to fit the monthly plan. Still, there is a dividend payer on my radar that just so happens to pay a fairly generous (and growing) dividend, currently yielding around 3% with payments that are monthly (so take the yield and divide it by 12).
When it comes to the monthly payers, I think it’s tough to go against the big Canadian REITs (Real Estate Investment Trusts), especially now that the fear of higher interest rates has worked its way through the more capital-intensive parts of the market. Indeed, the REITs are vulnerable to higher rates by their very nature, especially some of the growthier REITs out there.
Still, I think recent weakness could prove more of a buying opportunity, especially if the rate hike cycle to come doesn’t last all too long. Of course, inflation is going to need to come back down to Earth. Maybe a trade deal with the U.S. and some deflationary pressure in software from the incorporation of artificial intelligence (AI) technologies could be enough to calm inflation without having to go down the route of a “higher for longer” kind of interest rate environment.
Sure, we’ve all heard “transitory” before when it comes to describing inflation, but I do think that higher rates shouldn’t dictate what a long-term investor does with their holdings, especially an income-oriented investor who might just have to brace themselves and deal with the increased volatility as the Bank of Canada looks to potentially take a page out of the U.S. Federal Reserve’s playbook.
SmartCentres REIT
All considered, I think a name like SmartCentres REIT (TSX: SRU.UN) looks like an intriguing TFSA-worthy kind of monthly dividend payer (it’s a REIT, not a stock, but the name gets the job done for income investors since there would be no dividend tax credit within a tax-sheltered account). Personally, I think the TFSA is a fine parking spot for a REIT with a supercharged distribution, especially on this latest dip.
So, why go for shares of SRU.UN over the many other intriguing REITs out there? I’ll admit that the 7% yield (it’s an annual yield, but payments are monthly, so you’ll get closer to 0.6% per month) is a main reason why.
But, beyond that, I also like the high-quality tenant base of SmartCentres as well as the longer-term growth plan, which entails diversifying into property types beyond just retail (think residential and industrial). With strong, liquid tenants and an occupancy rate that’s strong and likely to stay strong, even as interest rates rise, I’m more inclined to view the latest pressure on the shares as a bit overdone.
Of course, with ambitious expansion projects and full growth pipelines comes hefty spending and, oftentimes, quite a debt load, which is frowned upon in a rising-rate environment.
In my view, SmartCentres is in a relatively decent spot, not only because of its rich funds from operations (FFOs) but because much of its debt has fixed rates. With a new debenture offering priced at $450 million, it’s my view that SmartCentres isn’t going to be dragged down all too much by any transitory rate-hike cycle. Its debt is managed well and its incoming cash flows are incredibly predictable, especially for a retail REIT.