With low yields, there's little incentive for investors to buy many of the US REITs; in contrast, Canadian REITs offer high yields to patient investors, explains Roger Conrad in Conrad's Utility Investor.
Low risks, generous yields, and potential upside from an eventual return to regular dividend growth are the reasons that income-seeking investors should stick with Canadian REITs for now.
First, a few tax-related caveats are in order. The Canadian government withholds 15% of any dividends paid to US investors; you can recover this amount by filing a Form 1116 with your US taxes. And the IRS taxes these qualified dividends at a maximum rate of 15% for most Americans.
Investors in a higher tax bracket should consider holding Canadian REITs in a tax-advantaged account. This approach means that you'll lose out on the 15% withheld by Canada but avoid the higher US dividend tax and any levies on capital gains.
You can buy these securities on the Toronto Stock Exchange-or over the counter-whichever option is cheaper through your broker.
Artis Real Estate Investment Trust (TSX: AX-UN), (OP: ARESF)
This owner of commercial and office property continues to expand beyond its legacy Alberta market. Of the 243 properties in Artis REIT's portfolio, 23% are in the US and 38% are in other Canadian provinces.
Office buildings account for about 52%, while the remainder of its portfolio is split evenly between industrial and retail locations.
Although we continue to wait for Artis REIT to raise its dividend, the firm's solid second-quarter of results leave no questions about the current payout's sustainability. Shares of Artis REIT yield almost 7% and rate a buy up to US$16.
Canadian Apartment Properties Real Estate Investment Trust (TSX: CAR-UN), (OP: CDPYF)
The owner of high-end apartments has raised its dividend four times since August 2012 and appears to have settled into a routine of hiking the payout by 2% to 3% annually.
Canadian Apartment Properties REIT grew its second-quarter revenue by 6.6% year over year and boosted its operating margins, fueling a 1.4% increase in adjusted funds from operations per share.
Trading below book value and yielding 5%, shares of Canadian Apartment Properties REIT are some of the best bargains on either side of the border and rate a buy up to US$26.
Cominar Real Estate Investment Trust (TSX: CUF-UN), (OP: CMLEF)
The Quebec-based owner of office, retail, industrial, and mixed-use properties recently raised its dividend by 2.1%, the first increase since June 2008.
In late August, Cominar REIT announced the CA$1.63 billion purchase of malls and offices owned by pension fund Caisse de Depot et Placement du Quebec.
In association with this blockbuster transaction, Ivanhoe Cambridge bought an 8.5% stake in Cominar REIT. This relationship creates the potential for future asset transfers, likely at prices that are accretive to cash flow.
Now Canada's third-largest REIT, the Quebec-based company owns properties in Toronto area, several Atlantic Coast provinces and continues to build a presence in western Canada.
Despite its growth prospects, Cominar REIT trades at only 86% of its book value and yields 7.7%; the stock rates a buy up to US$18 per share.
Morguard Real Estate Investment Trust (TSX: MRT-UN), (OP: MGRUF)
In the second quarter, acquisitions helped to lift Morguard REIT's funds from operations by 13.5% from year-ago levels. About 97% of the trust's square footage is occupied.
The company hasn't hiked its dividend since April 2012 and management indicated that future increases would hinge on developments in the office market and the firm's needs to finance acquisitions.
With a low payout ratio and no maturing debt at the corporate level until 2017, Morguard REIT is a low-risk buy up to US$16 per share.
RioCan Real Estate Investment Trust (TSX: REI-UN), (OP: RIOCF)
In the second quarter, Canada's largest REIT increased its funds from operations per share by 5% from year-ago levels.
Acquisitions and the completion of new developments also increased the REIT's exposure to major markets, which now account for 73% of its revenue.
Although the RioCan REIT has the scope to grow its payout, management remains focused on reducing the firm's debt load; we'll probably have to wait until next year for a meaningful bump to the dividend.
Trading at book value, RioCan REIT is a solid buy up to US$26 per share for even the most conservative investors.
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