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yield hog

John Heinzl is the dividend investor for Globe Investor's Strategy Lab. Follow his contributions here. You can see his model portfolio here.

Real estate investment trusts deserve a spot in every well-balanced investment portfolio. They own assets that typically rise in value, offer above-average yields and – if you choose your REITs carefully – their distributions will grow over time.

That's where today's column comes in. I've identified three REITs with a track record of raising their distributions. All three have conservative payout ratios that put their distributions on the safer end of the spectrum and also increase the likelihood of future increases.

REITs aren't risk-free, of course. Because they borrow to build and acquire properties, and because of their stable, bond-like cash flows, REIT unit prices can be vulnerable to rising interest rates. By focusing on REITs that raise their payouts regularly, you'll not only put more money in your pocket, but you'll also help to mitigate the impact of rising rates.

One strategy to consider: Create a shopping list of REITs and then wait for a pullback in the unit price. That will help to control your downside risk and also give you a higher initial yield.

The best part about owning REITs? You get to be a landlord and collect "rent" in the form of monthly distributions while someone else looks after all the day-to-day details of managing the properties. Treat this list as a starting point for further research and remember to do your own due diligence before investing in any security.

Chartwell Retirement Residences REIT (CSH.UN)

Price: $15.67

Distribution yield: 3.7%

As Canada's largest owner and operator of seniors' residences – with 190 properties and 26,600 beds in Ontario, Quebec, British Columbia and Alberta – Chartwell has both size and demographics working in its favour. The number of Canadians aged 75 and older is expected to roughly double to about 5.3 million by 2035 which, combined with greater wealth for this cohort, "should provide support to the seniors' housing industry in Canada for years to come," National Bank Financial analyst Kyle Stanley said in a note. Still, the industry remains highly fragmented, creating acquisition opportunities for a large player such as Chartwell, in addition to new development projects that are expected to increase its portfolio by more than 10 per cent over the next several years. Since selling its U.S. business in 2015 to focus on the Canadian market, Chartwell has raised its distribution three times, including a 2.5-per-cent hike announced in February. But its payout ratio remains conservative at about 60 per cent of adjusted funds from operations. Canaccord analyst Jenny Ma cites the REIT's healthy cash flow growth, strong balance sheet and the defensive nature of seniors' housing – which is less cyclical than other types of real estate – as reasons to like Chartwell. But she sees the units as "close to fairly valued" and rates them a "hold." Of the seven analysts following Chartwell, there are four "buys" and three "holds," with an average price target of $16.79, according to Thomson Reuters.

Choice Properties REIT (CHP.UN)

Price: $14.00

Distribution yield: 5.3%

Choice Properties was spun out by Loblaw Cos. Ltd. in 2013 and the grocery chain remains both its controlling shareholder (with an 82.6-per-cent stake) and biggest tenant (accounting for about 90 per cent of Choice's rent). The relationship with Canada's largest food retailer has several advantages for Choice: It contributes to stable revenues, high occupancy levels and low tenant turnover. It also provides Choice with a pipeline of property acquisitions from the parent company, in addition to the REIT's own development and intensification projects. These sources of growth, plus contractual rent increases, have helped Choice increase its distribution three times since the start of 2016 – including a 4.2-per-cent hike announced in April. Analysts see room for more distribution growth given that the payout ratio is a manageable 80 per cent of adjusted cash flow from operations. "Given its significant exposure to the grocery segment, Choice should be a good defensive play for those with a bearish macro outlook on consumer spending in Canada," said Desjardins Securities analyst Michael Markidis, who rates the units a "hold" with a price target of $15. Of the 10 analysts who follow the company, there are nine "holds" and one "buy," with an average price target of $14.69.

Canadian REIT (REF.UN)

Price: $46.65

Distribution yield: 4%

Widely considered to be one of the country's best-managed REITs, Canadian REIT offers a diversified portfolio that consists of office, retail and industrial real estate, with a small but growing residential business. Thanks to its strong balance sheet, conservative payout ratio (71.9 per cent of adjusted funds from operations in 2016) and steadily growing asset base, CREIT has been able to raise its distributions for 16 consecutive years – the longest track record for a REIT in Canada. The most recent hike was a 2.2-per-cent bump announced in May. Although CREIT's exposure to Alberta – accounting for 37 per cent of operating income in the first quarter – has been a drag on the units, CREIT's diversification and management expertise are helping it navigate through the downturn. "Over the past 20 years, CREIT's prudence has allowed it to outperform all peers through various economic cycles. Looking forward, we believe trusting CREIT's conservative nature is a recipe for investment success," said analysts Murray Leith and Trevor Chang of Odlum Brown, which has a "buy" rating and $58 target price on the units. Of the other seven firms that follow CREIT, four have "buy" ratings and three have "holds," with an average price target of $52.21.