Melcor REIT updated November 12, 2017

The Melcor REIT report is updated and remains rated Buy at $8.73 yielding 7.7%.

This REIT was added to the site on September 25, 2016 rated Buy at $8.63.

Since then, the units have done their job paying an annual yield of 7.8% of the $8.63 and with the unit price remaining quite stable.

The Melcor REIT is arguably an investment that could pay out a dividend yield of 7.7% for a great many years with probably some modest increase to the dividend over the longer term. Even if so, that is not really that exciting. If you put $10k into this and it pays $770 per year or $64 per month, and if the unit price remains stable, that is not much to get excited about. And there is the chance the unit price will decline.

But what if you have a larger portfolio and are looking for income and willing to hold for years? If someone puts $50k into this and collects $3850 per year or $321 per month, that might be reasonably exciting. For taxable accounts the dividend tax credit does NOT apply. (This is a correction written November 13 at 10:15 am eastern) I originally wrote that the dividend tax credit does apply. It does not apply to REITs which are therefore probably best suited to RRSP and TFSA accounts. For some REITs the distribution may be return of capital but that varies year by year.

Some investors would be attracted to the idea of owning hard assets, which in this case is a portfolio of buildings with about 50% of its rents from office buildings (mostly in Edmonton) and 43% from mostly newer retail buildings (this includes bank branches) the great majority of which are in Alberta. Owning and collecting rents from buildings has been a strategy of wealthy people since time immemorial. The term Rentier is sometimes applied to such wealthy people. Rentier is often seen as a negative term – mostly, not coincidently, by people not in a position to collect such rents.

Certainly the unit price is not immune from declining. This could occur due to higher interest rates and/or due to a developing surplus of office rental space in Edmonton among other reasons.  But keep in mind that the traditional wealthy rentier family kept their lands and buildings for decades and even generations. They were not looking to make a quick capital gain and sell. So, perhaps investors in this REIT could take the same long-term view. The distribution is unlikely to be cut but that is always a possibility.

Overall, the 7.7% yield is quite attractive and many investors might conclude that there is a place for this REIT in their portfolio. To date, I have not bought it partly because I am already so heavily exposed to Melcor Developments. But I am quite tempted to buy at this time.