5 Best Real Estate Stocks In Canada for June 2024

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, but its an intriguing option.

Here are 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 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.

Why Invest In Real Estate Stocks In Canada?

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:

  1. The underlying asset: Real estate is easily the most popular investment asset in Canada. Millions of Canadians become investors by buying real estate. 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.
  2. 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.
  3. A diverse sector: 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.
  4. Growth and dividend combination: Many growth-oriented real estate stocks also offer a decent yield, making them multipurpose and ideal for both dividend and growth 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 other sectors (usually in REITs), etc., are just a few reasons you may consider for not investing in real estate stocks.

5 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.

  • FirstService (FSV.TO)
  • Colliers International Group (CIGI.TO)
  • Mainstreet Equity (MEQ.TO)
  • Altus Group (AIF.TO)
  • Tricon Residential (TCN.TO)

1. FirstService

FirstService Stock
  • Ticker: FSV.TO
  • Forward Dividend Yield: 0.56%
  • Dividend Payout Ratio: 29.65%
  • Dividend Yield (12-Month Trailing): 0.4%
  • Upcoming Dividend Date: Apr 05, 2024
  • Market Cap: $9.86 Billion

FirstService is North America’s largest manager of residential communities and caters to a massive portfolio of over 9,000 communities, representing about 29.6 million housing units. That’s about six to eight percent of the total market. Most of the company’s revenue comes from the US (about 87%) and the rest from Canada.

That’s just one-half of the FirstService business. The other half, which brings in more revenue is their Brands business, which is made up of seven essential property services businesses like home inspection, painting, and fire protection companies.

Its revenues have been growing consistently over the past several years, and profits are outpacing the revenue growth lately, which is a testament to good financial management, considering its resource-intensive business model (27,000 Employees).

It carries a reasonable amount of debt, and the debt-to-EBITDA ratio is great at 1.5x.

It’s a clear leader in a relatively stable industry, financially healthy. It also has a very attractive ownership structure, with over 65% owned by institutions and 8.2% owned by insiders.

The return potential of the stock is equally impressive. Despite going through a brutal correction recently and losing nearly 40% of its value in a matter of months, the stock appreciated by about 550% between its inception (May 2015) and early Dec 2023.

It’s also a dividend aristocrat with a rock-solid payout ratio (around 0.5%) but a low yield, though the growth nicely balances it out.

You should consider FirstService for its significant return potential and the fundamental strengths that are likely to sustain its long-term growth. Apart from its permanent overvaluation, this stock has relatively little risk.

2. Colliers International Group

  • Ticker: CIGI.TO
  • Forward Dividend Yield: 0.26%
  • Dividend Payout Ratio: 63.83%
  • Dividend Yield (12-Month Trailing): 0.18%
  • Upcoming Dividend Date: Jan 12, 2024
  • Market Cap: $8.07 Billion

Colliers International Group is a geographically and service-wise diverse company. It operates in 66 different countries (though around half of its adjusted EBITDA comes from the Americas) and offers a wide range of services to both ends of the commercial markets – from investors and landlords to tenants.

It has roughly $98 billion worth of assets under management and has been steadily growing its revenues and EBITDA over the last decade. Annualized EBITDA growth between 2017 and 2022 was about 21%, eight percentage points higher than its revenue growth over the same period.

Its ownership structure is quite attractive – with institutions claiming over 72% of the company and insiders about 15%. Insiders own more of Colliers International than retail investors.

Its long-term growth has been phenomenal. If you had invested $1,000 in 1995 in this company, you would have grown your capital over 100x ($100,000).

While the recent growth pace hasn’t been equally impressive, it’s good even for a growth stock. The overall returns between December 2013 and December 2023 are over 500%.

You should know that Colliers is dangerously overvalued and carries a significant amount of debt.

However, over 56% of that debt is fixed rate. Despite its overvaluation, the return potential and its resilience in weak markets are reasons enough to consider this real estate stock.

3. Mainstreet Equity

Mainstreet Equity Stock
  • Ticker: MEQ.TO
  • Upcoming Dividend Date: Jan 31, 2024
  • Market Cap: $1.57 Billion

Mainstreet Equity has a relatively simple business model. They look for distressed or ill-managed residential properties in Western Canada, improve them, and rent them out.

Over the years, they have developed a sizable portfolio – over 17,000 properties spanning over 20 cities. Over half the portfolio is in two cities, Calgary and Edmonton. That’s over 12x portfolio growth since 2000.

They are mostly mid-market companies, which means they usually look for smaller properties with a hundred or fewer units to flip.

The company carries a debt higher than its market capitalization, but 99% of the debt is fixed at a very reasonable rate (less than 3%). So it’s heavily leveraged, but not dangerously so.

Its revenue growth has been modest and steady because the bulk of its income is poured back into growing the portfolio. It’s profitable with a modest net income, and its chief attraction is its capital appreciation potential.

The stock has risen over 232% in the last ten years without becoming overvalued, which is an impressive achievement.

Mainstreet Equity is a healthy company you should consider for its current growth potential and future dividend potential since as a massive landlord, it may have access to decent cash flow once it starts balancing income generation with portfolio growth.

About 8.1% of the company is owned by insiders, which shows confidence in the business.

4. Altus Group

  • Ticker: AIF.TO
  • Forward Dividend Yield: 1.38%
  • Dividend Payout Ratio: N/A
  • Dividend Yield (12-Month Trailing): 1.3%
  • Upcoming Dividend Date: Jan 15, 2024
  • Market Cap: $2.09 Billion

Altus Group is a solutions provider for the commercial real estate (CRE) industry. It has a decent portfolio of tech-based solutions directed at the CRE industry, including property valuation, portfolio performance, market insights, and property tax management in three key markets, the US, Canada, and the UK.

Most of its clients are from the US and Canada.

Since it’s essentially a tech and service company that caters specifically to the commercial real estate market, it carries very little debt, and the debt-to-EBITDA ratio is healthy at 2.2x.

The company has managed to grow its client base steadily over the years, and its recurring revenues are at a healthy level, which is good for its dividends. The yield is modest at around 1.5%.

While insiders don’t hold much of the company, the institutions own about 45%, which makes it relatively steady. From a return perspective, Altus is a decent pick, considering its capital appreciation potential.

The performance has been unsteady, but the stock rose by about 140% in the ten years between December 2013 and December 2023. The overall returns push quite close to 200%.

However, it’s important to understand two weak points of the company as well – Valuation and financially unstable dividends, though the latter is a persistent condition and the company hasn’t slashed its payouts yet.

You should consider Altus Group for its growth potential, but it’s important to understand that it relies heavily on the performance of the commercial real estate market in North America.

5. Tricon Residential

  • Ticker: TCN.TO
  • Forward Dividend Yield: 2.57%
  • Dividend Payout Ratio: 39.32%
  • Dividend Yield (12-Month Trailing): 1.56%
  • Upcoming Dividend Date: Jan 15, 2024
  • Market Cap: $4.08 Billion

Tricon Residential is another US-leaning landlord, though it focuses more on single-family and multifamily homes compared to low-rise or high-rise apartment buildings.

The asset classes are geographically diversified, too, as most of its 38,000 units are single-family homes in the US, and the rest are multifamily properties in Canada, making up only 4% of the total assets the company owns.

It has about $16.2 billion worth of assets under management, including third-party assets, i.e., properties it oversees on behalf of other landlords. Rents are the primary source of its revenues, and on rent-per-square-foot, it stands out from its two main competitors.

Its major weakness is the massive amount of debt it carries, but the bulk of that debt is fixed rate (73%) and is leveraged against hard assets. The net debt to EBITDA ratio is unhealthy but sustainable, considering its current debt-management approach.

You may not find Tricon Residential equivalent to other, more rewarding stocks on this list, especially considering its modest dividend yield and uncertain capital appreciation potential. But it’s not a risky pick and, under the right circumstances, may even generate decent returns through price appreciation.  

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 favour.

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).

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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) keep a lot of investors at bay.

Real estate stocks are the next best thing, so it’s worth having a look.

Don’t want to pick your own stocks? Check out the best REIT ETFs in Canada.

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Author Bio - Christopher Liew is a CFA Charterholder with 11 years of finance experience and the creator of Wealthawesome.com. Read about how he quit his 6-figure salary career to travel the world here.

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