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Thursday, October 30, 2014

Invest and retire before you die - RioCan Real Estate Investment Trust (REI.UN.TO)

Have you ever wondered how an investment in a boring, blue chip company that pays dividends to share holders and periodically grows those dividends performs over long periods of time?

Welcome to the Invest and retire before you die series, where I explore the merits of long term investments in Canadian blue chip companies that pay and grow their dividends every year. I have seen these studies for American companies in the past and figured it would be nice for people to find something equivalent for Canadian ones. Notice that many Canadian blue chips companies are also listed in American exchanges and are therefore easily available to US investors.

If you are interested in other companies already discussed as part of this series, you can check out:
Invest and retire before you die - The Bank of Nova Scotia (BNS)
Invest and retire before you die - Emera Inc (EMA)

Why dividend payers and growers?
Revenue that is distributed to share holders is the hard proof that money is flowing in the business. It is hard to argue with cash that is periodically paid out to shareholders. In addition to that, dividends that are increased every year show the confidence that the management of a company has in the future operations of the business to sustain the new pay outs. Management knows how negatively, future dividend cuts are perceived by investors. That's why, when dividends are increased, they better make sure they can sustain them, which shows confidence. Increasing a dividend shows that the business is not only functional but that there is potential for sales and revenues to keep growing going forward. 

Dividends are not only for old retirees but for anyone willing to make money as a long term investor. From 1930 to 2013 dividends were responsible for about 42% of Stock Markets returns.

An Investment in RioCan Real Estate Investment Trust
Symbol: REI.UN.TO (Toronto Stock Exchange)

Taken from Google Finance:
"RioCan Real Estate Investment Trust (the Trust) is a closed-end real estate investment trust (REIT). The Trust owns and manages portfolio of shopping centers, with ownership interests in a portfolio of 331 retail properties in Canada and the United States combined."

How would a $10,000 investment in RioCan have fared in the last two decades?
Data from April 25, 1996 to October 17, 2014. That is 18.5 years. Numbers reflected in Canadian Dollars.

A $10,000 investment in RioCan on April 25, 1996 with dividends reinvested in the stock would have been worth $284,478 on October 17, 2014. That is an Average Annual Return of 19.85% in a period that includes the 2000 dot com bubble burst, 9-11 terrorist attacks, Wars, the 2008 market correction (second worst in history), the 2011 debt ceiling issues in the US, the European debt debacle. Your initial investment would have been multiplied 28 times. You would own 11,110 shares at the end of the period, each one of them paying you $1.416 a year in dividends for a total passive income of $15,731 per year.

Comparison of an investment in RioCan vs an investment in the S&P500 index
But what if instead of buying once and forgetting you decided to contribute with additional purchases every year? What if instead of purchasing $10 000 worth of stock once, you decided to invest $5000 every year?

Had you invested $5000 every year in RioCan and reinvested all the dividends along the way, your investment would be worth around $833,557 and you would be the proud owner of around 32,573 shares of stock that would be paying you $46,123 every year in the form of dividends. Dividends that are favorably taxed in respect with normal income a.k.a salary. Dividends that provide you with cash flow without selling your shares, without giving away your ownership on the company.

A long term investment in RioCan was a remarkable, true life changer and could very well be going forward. In full disclosure, I have purchased shares of this company on three different occasions in the past and my total position is 177 shares as of this writing, which I plan to hold for the next few years (hopefully two decades).

Related Articles:
Chapter 1 - Invest and retire before you die - The Bank of Nova Scotia (BNS)
Chapter 2 - Invest and retire before you die - Emera Inc (EMA)
Chapter 3 - Invest and retire before you die - RioCan Real Estate (REI.UN)
Chapter 4 - Invest and retire before you die - Potash Corp. of Saskatchewan (POT)
Chapter 5 - Invest and retire before you die - Enbridge (ENB)
Chapter 6 - Invest and retire before you die - TransCanada Corporation (TRP)
Chapter 7 - Invest and retire before you die - Suncor Energy (SU)
Chapter 8 - Invest and retire before you die - Toronto-Dominion Bank (TD)
Chapter 9 - Invest and retire before you die - Telus Corporation (T)
Chapter 10 - A basic Dividend Growth oriented Canadian Investment Portfolio

Go to the bottom of this page in order to see the Legal Stuff


  1. I have a book suggestion for you. "Dividends still don't Lie" by Kelley Wright.

    1. Thanks for the suggestion Paul! I was indeed looking for new books to read and had nothing in line.