take a break

30 September

Model Portfolio - REIT Sector

In my orignal post about the Model Portfolio I didn't define what a REIT is. REIT stands for Real Estate Investment Trust and I think these might have been the original investment trusts. What is the difference between an investment trust and a regular stock? Good question, I don't completely understand the difference but an investment trust is basically a legal structure that allows a company to pass income through to shareholders in a more tax efficient manner than they can as a regular company. The way the income received by unit holders (investors) of an income trust from that income trust gets taxed is different (most of the time) than the dividend income that regular companies pay out. In order to have a good understanding of how income from investment trusts gets handled from a tax perspective you should talk to a tax professional which I am not.

Back to the model portfolio. I had allocated 10% of the income generation of the overall portfolio to REITs. This means that of our $3500 yearly income $350 should come from REITs. There are a few good REITs to choose from on the TSX ranging from REITs with a focus on apartment buildings to REITs with a focus on office space to REITs with a focus on retail space. I chose to put two companies in this part of the portfolio and both have a focus on the retail space, which probably isn't a great idea but I'll stick with that for now and maybe make some adjustments later.

The two companies I chose are Rio Can REIT (REI.UN) and Calloway REIT (CWT.UN). Rio Can is currently paying out a distribution of $1.29 a year and Calloway is paying out $1.45 a year. I want both of these companies to have equal weighting in the REIT portion of my portfolio so they will each need to generate $175 of income per year. That gives us the following number of shares required for each company:

Rio Can: 136 (136*1.29 = $175.44)
Calloway: 121 (121*1.45 = $175.45)

In my next post on the Model Portfolio I will discuss the Utilities/Pipelines sector.

Disclaimer: This model portfolio is intended for illustrative purposes only and should not be used as a guide for building your own portfolio. Before making any investment decisions you should do your own homework and consult with the appropriate financial professionals. I am not a financial professional.

posted at 12:13:03 on 09/30/06 by 0xCC - Category: Model Portfolio


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