Some investments need regular monitoring, while others can keep putting cash into your account without much effort on your part. For Tax-Free Savings Account (TFSA) investors, the second option could be especially rewarding. After all, receiving regular cash distributions gives you more money to reinvest and grow your wealth without paying Canadian tax on investment income earned inside your TFSA.
And you don’t necessarily have to chase the most popular TSX dividend stocks to build such an income stream. Even many lesser-known businesses listed on the Toronto Stock Exchange generate steady cash flow simply by collecting rent from commercial properties.
In this article, I’ll highlight one such Canadian real estate stock that offers attractive monthly dividends and could help turn your TFSA into a reliable cash machine.
A little-known TSX monthly dividend stock to buy
The lesser-known TSX stock I want to highlight for TFSA investors is CT Real Estate Investment Trust (TSX: CRT.UN). This Toronto-based real estate investment trust (REIT) owns over 380 commercial properties across Canada, covering nearly 32 million square feet. Its portfolio mainly includes retail properties, with Canadian Tire being its largest tenant.
Over the last year, CT REIT stock has gained 15% and currently trades at $18.45 per unit with a market cap of $2 billion. At this price, it offers an attractive annualized dividend yield of 5.3%, with payouts made every month.
But there’s more to this monthly income stock than its healthy yield. CT REIT’s strong property portfolio and improving financial performance make it even more appealing for long-term TFSA investors. For example, the REIT maintained an impressive portfolio occupancy rate of 99.5% at the end of the September quarter.
Strong financial growth supports monthly distributions
Interestingly, CT REIT continues to grow its rental income and generate more cash to support its monthly distributions.
In the third quarter, the REIT’s property revenue rose 6.7% year-over-year (YoY) to $161.3 million. Its net operating income climbed by an even stronger 8.5% YoY to $130.1 million, backed by higher rental income from existing properties, recent acquisitions and developments, and lease surrender revenue.
Although CT REIT’s quarterly net profit slipped nearly 6% YoY due mainly to lower fair value gains on investment properties and higher expenses, its underlying operating performance remained solid.
More importantly, its adjusted funds from operations (AFFO), a key measure used to assess a REIT’s ability to support distributions, climbed more than 8% YoY, helped by property investments, contractual rent increases, and higher property recoveries.
Adding to the optimism, CT REIT’s AFFO payout ratio improved to 72.7% in the latest quarter from 75.7% a year ago. This suggests the REIT has a reasonable cushion to back its monthly payouts while continuing to fund future growth.
Why this monthly cash machine could keep rewarding investors
Besides generating reliable rental income from its existing properties, CT REIT is also investing in new opportunities that could strengthen its cash flow in the coming years.
During the latest quarter, the REIT acquired a Canadian Tire store in Victoria for $14 million and announced a $22 million redevelopment project in Kelowna. These investments are likely to add about 122,300 square feet of leasable space to its portfolio and generate an initial yield of 8.5%.
On top of that, CT REIT recently completed an $11 million expansion of a Canadian Tire store in Saskatoon, adding another 51,000 square feet to its property portfolio.
Given its nearly fully occupied portfolio, growing AFFO, and continued investments in expansion projects, CT REIT could support its monthly distributions while pursuing long-term growth. This combination makes it an attractive cash-generating stock to consider buying and holding in your TFSA right now.