In Canada (like in most other countries), more people invest in real estate than in any other asset. That’s because homeownership is a form of real estate investment as well.
But investing in real estate directly can be quite expensive for most retail investors, and real estate stocks offer a more financially feasible option.
Many people don’t consider investing in real estate stocks instead of real estate: if you consider its “weightage” in the TSX, real estate is the second smallest sector in Canada.
Still, it gives you plenty of options to invest in this thriving and relatively stable asset class, and I’ve prepared this list of some of the best real estate stocks in Canada to get you started.
Real Estate Stocks vs. REITs
Before we discuss real estate stocks in earnest, it’s important to make one distinction: the term real estate stocks is NOT synonymous with REITs. Real Estate Investment Trusts or REITs are an industry within the real estate sector, i.e., a subset.
But REITs tend to attract more investor attraction compared to the other real estate stocks, primarily because they allow investors more direct exposure to the real estate as an asset class than other real estate companies.
Another reason why REITs get so much love from investors is their generous dividend structure and monthly payouts, making them an ideal source of passive income. Buying into a REIT is effectively like becoming a landlord without all the responsibilities and with a much, much lower cost barrier to entry.
Still, REITs are still just a portion of the real estate sector as a whole. The sector offers a decent and diverse variety of holdings. And we can stretch the real estate stock pool if we borrow an overlapping industry/business segment from the financial sector, i.e., mortgage companies.
That’s because mortgage companies are more exposed to the real estate sector as a whole and follow their trends more closely than the sector (financial) they are actually in.
15 Best Real Estate Stocks In Canada
Every investor’s definition of best might be slightly different, but three core things that investors usually look for are growth prospects, dividends (yield, stability, growth potential, etc.), and risk/volatility. The risk is associated with both capital appreciation prospects that a stock has to offer and dividends.
Based on that, I have prepared a list of some of the best real estate stocks in Canada. This list will have two segments: Real estate stocks that aren’t REITs and REITs.
Note that all the metrics and figures below are for the time this article was written.
Non-REIT Real Estate Stocks
1. FirstService Stock
10-Year CAGR: N/A (5-Year CAGR: 30.9%)
Dividend Yield: 0.31%
Payout Ratio: 27%
Beta (5Y Monthly): 0.91
FirstService is a real estate services company and has two business divisions. One is a residential property management business that covers 8,500 properties (over 1.7 million individual units) in both Canada and the US.
The other is essential property services which cater to both residential and commercial properties. It’s one of the best real estate stocks in Canada because:
- It’s a powerful and consistent growth stock that has been on a bull run practically since inception.
- It’s a dividend aristocrat, and even though the yield is low, it grows its payouts quite generously (almost 49% growth in the last five years).
- The financial growth is keeping pace with the stock growth.
- Despite relying heavily on real estate, the stock is not as exposed to property values as most other real estate stocks are.
2. Altus Group
10-Year CAGR: 35.95%
Dividend Yield: 0.9%
Payout Ratio: 75.9%
Beta (5Y Monthly): 0.77
Altus is a software and consultancy company that caters to the commercial segment of the real estate market. It offers custom software and data solutions to different stakeholders in Commercial Real Estate (CRE) and has over 7,000 customers around the globe.
Its business basically relies on the activity in the real estate market, i.e., the more active players there are in the commercial sector, the more business it’s likely to conduct. Stock highlights:
- Decent overall growth potential, albeit at a relatively higher price.
- CRE-orientation and nature of business (software) shelter it from potential housing market crash.
- Low yield and no dividend growth.
3. Colliers International Group Stock
10-Year CAGR: 25.8%
Dividend Yield: 0.06%
Payout Ratio: 8.2%
Beta (5Y Monthly): 1.54
Another growth stock in the real estate sector is Colliers International. It’s listed in the NASDAQ as well and is an investment management and consultancy company with about $45 billion worth of assets under management and operations in 66 countries. A few things about the stock:
- A strong international presence and diverse business operations make it safer and more stable despite its high beta.
- Powerful long-term growth potential.
- Strong financials.
- Almost non-existent dividend yield.
4. Tricon Residential
10-Year CAGR: 17.1%
Dividend Yield: 1.75%
Payout Ratio: 13.6%
Beta (5Y Monthly): 1.26
If you are looking for direct exposure to the real estate asset and residential market, Tricon residential is a good option outside the REIT realm. It owns over 33,000 single-family and multi-family homes in North America (the US portfolio is most extensive) and is a service-oriented landlord.
A few things you need to know about Tricon are:
- The CAGR is skewed because of the post-crash growth momentum. It’s not a very consistent growth stock in general.
- The yield is relatively high, and the payout ratio is stable. But the company has only grown its dividends once in the last five years.
- The price is usually quite fair.
- Offers direct exposure to the real estate market, which is good when the market is thriving (like now) but a liability if the housing market crashes.
5. Timbercreek Financials Stock
10-Year CAGR: N/A (5-Year CAGR: 12.1%)
Dividend Yield: 7%
Payout Ratio: 135.2%
Beta (5Y Monthly): 1.09
Timbercreek Financials offers loans to CRE investors, so we can count it among the best real estate stocks in Canada despite even though it’s from the financial sector. To shareholders, it offers generous dividends and safety of capital by generating loans primarily for income-producing CRE.
- The yield is among the best the TSX has to offer, but don’t expect any dividend growth.
- The stock is usually quite stable but also slow to recover.
- Financials are stable.
- Minimal capital appreciation potential.
- It is fairly valued at the time of writing this.
6. MCAN Mortgage Stock
10-Year CAGR: 11.4%
Dividend Yield: 7.3%
Payout Ratio: 42.3%
Beta (5Y Monthly): 1.16
MCAN is a federally regulated mortgage investment corporation, giving it official weight. Its generous yield (that’s backed by a powerfully stable payout ratio) lands it a place among the best real estate stocks in Canada.
It caters to both residential and commercial properties, and the bulk of its portfolio is made up of two segments: single-family mortgages and construction loans. The stock is worth considering for several reasons.
- Government-backing might make this more stable than other private corporations.
- The yield is overly generous, despite the fact that the stock is trading near its all-time high.
- Long-term capital appreciation potential is decent, especially at its current undervalued state, but the growth is quite erratic.
7. Real Matters
10-Year CAGR: N/A (3-Year CAGR: 28.1%)
Dividend Yield: N/A
Payout Ratio: N/A
Beta (5Y Monthly): 0.83
Even though it’s a part of the real estate sector, its primary domain would be technology. It provides services and solutions to mortgage lenders and insurers within the real estate sector. The company generates most of its revenue from the US (titles and appraisals) and only a fraction from Canada.
- It offers indirect exposure to the real estate sector (through tech and services).
- Its growth potential, while highly erratic, is quite enormous. It grew well over 800% in less than two years (between 2019 beginning and its 2020 spike).
- A heavy US presence shelters it from local real estate sector problems.
These seven are some of the best real estate stocks in Canada that are not exactly REITs. However, REITs offer a relatively wider variety, especially when it comes to dividends.
Also, for REITs, the Funds From Operations or FFO payout ratio (or Adjust FFO payout ratio) is a better indicator of the financial viability of dividends than the payout ratio.
REIT Real Estate Stocks
8. SmartCentres REIT Stock
10-Year CAGR: 8%
Dividend Yield: 6%
FFO Payout Ratio: 84.5%
Beta (5Y Monthly): 1.23
SmartCenter has a portfolio of 168 shopping centers, 115 of which are anchored by Walmart, which makes the REIT’s tenant profile quite attractive. The REIT is also expanding into urban city centers and uniquely designed communities that offer a more fulfilling standard of living.
- SmartCentres is an aristocrat with a very attractive yield and a stable payout ratio.
- The capital appreciation potential is low, but it’s available at a fair price.
- The REIT is stable and diverse and is focusing on reshaping its portfolio and switching away from a relatively troubled asset class, i.e., brick-and-mortar retail.
9. Granite REIT Stock
10-Year CAGR: 18.8%
Dividend Yield: 3.29%
FFO Payout Ratio: 79%
Beta (5Y Monthly): 0.73
Granite operates an international portfolio (seven countries) of 118 commercial properties with a decent occupancy ratio (99.6%). Apart from geographic diversification, its major strength is its portfolio, two-thirds of which (by asset value) comprises of distribution/e-commerce properties.
- Granite offers a powerful combination of capital appreciation potential, dividends, and stability.
- Its international portfolio made up of an attractive asset class ensures a bright long-term future.
- The stock is financially stable.
- It’s an aristocrat with a modestly attractive yield at a fair price.
10. Canadian Apartment Properties REIT Stock
10-Year CAGR: 15.8%
Dividend Yield: 2.37%
FFO Payout Ratio: 60%
Beta (5Y Monthly): 1.01
With a market capitalization of $10.5 billion, CAP REIT is the largest REIT in the country and manages over 65,000 apartment and townhouse suits in Canada as well as two countries in Europe. It’s a growth-oriented REIT with brutally stable dividends (thanks to the FFO) and an impressive footprint.
- The growth history is consistent and decently-paced and currently available at a discounted valuation.
- Dividends are safe, and you can lock in a better yield by buying this REIT when it dips.
- It’s heavily invested in the housing market, so vulnerable to a housing crash. However, the rental income might stay safe even if property prices drop.
11. Inovalis REIT Stock
10-Year CAGR: N/A (5-Year CAGR: 10%)
Dividend Yield: 8.58%
FFO Payout Ratio: (Not Found: Payout Ratio: 470%)
Beta (5Y Monthly): 1.5
If you are looking for 100% international real estate, Inovalis is one of the “purest” options. It has a completely European portfolio with office properties in Germany and France.
- Before the crash, the REIT offered slow but consistent capital appreciation.
- It offers a mouthwatering yield, albeit at risky financials.
- The financials are not rock-solid.
The reason this REIT is on the list of best real estate stocks in Canada despite not have the right characteristics is that it hasn’t slashed its payouts so far and even offered a special dividend in June 2021, despite the tough financial situation.
12. True North Commercial REIT Stock
10-Year CAGR: N/A (5-Year CAGR: 13.34%)
Dividend Yield: 7.8%
FFO Payout Ratio: 106%
Beta (5Y Monthly): 1.4
True North Commercial is another REIT that has shown amazing resilience when it comes to dividends and has maintained its payouts even though the FFO payout ratio has entered dangerous territory.
It has 45 commercial properties in five provinces (most in Ontario). The occupancy ratio is heartening (97%), and the three-fourth of the tenant portfolio is made up of government or credit-rated tenants.
- The REIT offers modest capital appreciations potential at a fair price.
- The portfolio is stable from both tenant and geography perspectives.
- The yield is quite high and sustainable, despite the high payout ratio.
13. Slate Grocery REIT Stock
10-Year CAGR: N/A (5-Year CAGR: 3.8%)
Dividend Yield: 8%
FFO Payout Ratio: 100%
Beta (5Y Monthly): 1.62
Slate Grocery has a US-based Grocery-focused portfolio, and since groceries, as the basic necessity (food), is a business that thrives regardless of the market conditions (to an extent), Slate Grocery REIT is quite safe (despite the high FFP payout ratio).
It has 106 properties in 23 US states, 98% of which are grocery-anchored.
- Very high and sustainable yield at an undervalued price.
- A safe and reliable asset class that can survive market crashes and pandemics.
- Almost no capital appreciation potential.
14. Automotive Properties REIT
10-Year CAGR: N/A (5-Year CAGR: 12.2%)
Dividend Yield: 6.17%
FFO Payout Ratio: 85.2%
Beta (5Y Monthly): 1.35
Automotive Properties REIT is what you might call a niche REIT since it focuses on a niche real estate segment, i.e., automotive dealerships. That’s a strength since it means little competition and more power within the market segment and a liability thanks to its heavy reliance on the automotive industry.
But in a few years, a lot of activity is expected to take place within the automotive sector as more people switch from conventional vehicles to green ones, and this transition will continue for at least a decade or so.
- Powerful combinational of dividends and capital appreciation potential.
- Yield is quite high at a stable payout ratio.
- A decent national footprint.
15. NorthWest Health Properties REIT
10-Year CAGR: N/A (5-Year CAGR: 12.1%)
Dividend Yield: 6%
FFO Payout Ratio: 97%
Beta (5Y Monthly): 0.78
Another niche REIT that deserves a place among the best real estate stocks in Canada is NorthWest, which has a diversified portfolio of 189 income-producing properties (including clinics, offices, hospitals, etc.) spread out across three continents.
- Focuses on an evergreen industry, i.e., health.
- A decent combination of dividends and growth potential.
- It is currently trading at a very affordable price.
There are several other REITs that deserve to be counted among the best real estate stocks in Canada, but the eight stated above plus the seven other real estate stocks will give you a decent exposure to the sector. For a more spread out and diversified exposure to the sector, you might consider REIT ETFs.
Canadian REITs to Avoid
Even though real estate stocks in general and REITs in particular, offer a decent selection of safe and rewarding stocks, there are certain assets that you should try and avoid, at least for the foreseeable future. Two of the most prominent ones are:
American Hotel Income Properties REIT
The REIT’s valuation has been in a steady decline for the last five years, and the 2020 market crash only expedited the situation. The REIT is still trading at a price that’s over 40% down from its pre-pandemic valuation. And that’s just the stock’s poor performance.
The financials have just now started to recover, and the total debt the REIT carries is almost three times the entire market capitalization. And it doesn’t pay any dividends. The beta is 2.93 (one of the highest) in the sector. There are more reasons to not buy the company and very few in its favor.
Firm Capital Apartment REIT
Unlike the REIT above, this one isn’t a fundamentally bad choice, but it’s not a very smart buy right now. The market capitalization of $60 million makes it a microcap, and it offers relatively little for the high valuation it trades on.
It’s also engaged in a relatively dangerous business segment, i.e., mortgage debt investment (along with the more typical investments in income-producing properties).
Why Invest In Real Estate Stocks In Canada?
Each sector on the TSX has its own strengths and weaknesses, and real estate is no exception. Understanding what they are and the defining characteristics of the sector can help you make more informed decisions.
Like all investors, you’ll have your own investment preferences, risk tolerance, growth goals, dividend income goals, etc., and understanding the sector is usually the first step in determining whether the securities within the sector will offer what you are looking for.
For dividend investors, the real estate sector might offer a richer pool of individual assets compared to tech, but dividends aren’t the only thing that defines the strength of the real estate sector. There are other factors to consider as well.
The underlying asset: Real estate is easily the most popular investment asset there is. Millions of Canadians who might have never bought or sold a stock, a fund, or even a commodity (as an investment) become investors (in a way) by buying real estate.
Every homeowner, even the ones that haven’t paid off their homes, has a solid, tangible investment on their hands in the form of the portion of the house they own. This makes real estate an investment asset that almost everyone understands.
It’s tangible, as solid as a hard asset can potentially be, and few investment assets can match the stability real estate offers. Real estate stocks offer you exposure to this asset class often in ways that (depending upon the stock you are investing in) enhance its characteristic strengths.
An active market: Real estate is made up of two thriving segments: Residential and commercial, and there is almost always a lot of activity. When people are buying property more actively, it triggers revenue generation and activity in other industries like mortgage, construction, insurance, etc.
There is also a significant rental market that’s almost always thriving. Properties change hands frequently in both commercial and residential realms. And since housing is one of the core necessities, the market almost always remains active, so someone is usually always making money.
And if you can find that business and stick to it for the long-term, you are likely to profit off them as well.
A diverse sector: While most sectors are composed of several industries, they are usually too interdependent that if the central asset class is impacted, the entire sector usually suffers (like energy does when demand dries up).
Real estate, while not completely immune, is somewhat sheltered from this impact thanks to its diversity. The two main segments, i.e., residential and commercial, are quite independent.
Within the commercial sector, you might see the retail segment suffering due to the e-commerce boom, but at the same time, light industrial, logistics, and warehousing properties (and businesses associated with these real estate classes), which are part of the commercial real estate, are rapidly growing.
Growth and dividend combination: The diversity also reflects in the variety of growth and dividend stocks the sector has to offer. Relatively few growth stocks are as rapid and fast-growing as the stocks from, say, tech.
But many growth-oriented real estate stocks also offer a decent yield, making them multipurpose and ideal for DRIP (if you are planning to grow your stake for a later date, say retirement).
Stability: At the time of writing this, the housing market in Canada is cooling off, and there are warnings about regulations to prevent foreign capital injection in the Canadian housing market, which might trigger some drastic short-term results (possibly a severe correction) but might be beneficial in the long-term.
This might not sound very “stable,” but real estate usually is rock solid. The prices don’t go up in a matter of days, and they also don’t come down quite rapidly, and this reflects in most real state stocks, especially REITs as well.
Many REITs took a lot of time to reach their pre-pandemic valuation. This stability makes the sector ideal for both long-term and novice investors.
There are reasons not to invest in real estate stocks as well. The relatively slow pace, very few dividend investors in the sector, dividend slashes more common than another sector (usually in REITs), etc., are just a few reasons you may consider for not investing in real estate stocks.
But as a whole, the pros outweigh the cons by a significant margin, and I recommend real estate stocks to almost every investor.
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Many investors are attracted to real estate as an asset class, but the barrier to entry and the more active investor role (as a landlord and a portfolio owner) keeps a lot of investors at bay.
Real estate stocks are the next best thing, and if you pick only from the best real estate stocks in Canada, you are likely to get most of the benefits with almost none of the downside. Use diversification to dilute the risk and maximize the returns even more.