High income at moderate risk

Article Excerpt

Real estate investment trusts (REITs) may get more attractive in the next year or so as income trusts start to disappear. Ottawa will start taxing income-trust distributions in 2011. As a result of this change, many trusts will convert to regular corporations and pay corporate taxes. That will give them less cash to distribute to shareholders. REITs will remain exempt from the income-trust tax, as long as they get most of their cash flow from properties in Canada. It’s likely that income-seekers will look to REITs to replace income trusts and provide a hedge against inflation. Real estate is a cyclical business, and rental income from the underlying properties can suddenly dry up during economic slowdowns. To cut your risk, you should focus on well-established REITs with long histories of maintaining their distributions during cyclical downturns. RioCan is still our top choice among REITs. Although it relies on the cyclical retail industry for its cash flow, it lowers its risk by focusing on…