What are we looking for?
Canadian real estate investment trusts with sustainable distributions despite the economic wallop of COVID-19.
The screen
The market plunge in the wake of the coronavirus crisis has cut prices for most stocks and REITs. But REITs, in particular, must directly grapple with its impact on tenants’ ability to pay rent.
Still, government transfers to individuals and businesses should partially offset that. Recent interest rate cuts are another big plus for mortgage-heavy REITs.
It’s also worth highlighting that some REITs focused on high-value core markets have greater resilience in these tough times. They’re most likely to weather the COVID-19 storm while protecting strong distributions for income seekers.
Our search started with Canadian REITs. From there, we applied our TSI Dividend Sustainability Rating System, awarding points to a stock based on key factors:
- One point for five years of continuous dividend payments – two points for more than five;
- Two points if it has raised the payment in the past five years;
- One point for management’s commitment to dividends;
- One point for operating in non-cyclical industries, which are less sensitive to the ups and downs of the economy;
- One point for limited exposure to foreign currency rates and freedom from political interference;
- Two points for a strong balance sheet, including manageable debt and adequate cash;
- Two points for a long-term record of positive earnings and cash flow sufficient to cover dividend payments;
- One point if it’s an industry leader.
Companies with 10 to 12 points have the most secure dividends, or the highest sustainability. Those with seven to nine points have above-average sustainability; average sustainability, four to six points; and below average sustainability, one to three points.
More about TSI Network
TSI Network is the online home of the Successful Investor Inc. – the group of widely followed Canadian investment newsletters by editor and publisher Pat McKeough. They include our award-winning flagship newsletter, The Successful Investor. The TSI Best ETFs for Canadian Investors is the latest. TSI Network is also affiliated with Successful Investor Wealth Management
What we found
Our TSI Dividend Sustainability Rating System generated five names. Choice Properties REIT’s principal tenant is leading Canadian grocer Loblaw Cos. Ltd. CT REIT is backstopped by long-term leases with Canadian Tire Corp. Ltd., its main lessee. NorthWest Healthcare Properties REIT has mostly high-quality tenants such as doctors, dentists, pharmacies, laboratories and diagnostic imaging clinics. Although some of those tenants, notably dentists, may face difficulty during the COVID-19 crisis, most tenants should remain operating. Dream Industrial REIT and WPT Industrial REIT both tap into e-commerce and online retailing with packaging and logistics centres that have kicked into high gear as bricks-and-mortar locations shutter operations.
We advise investors to do additional research on any investments we identify below.
Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.
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Scott Clayton