1 Dividend Stock That Looks Like an Easy Decision to Buy on a Pullback

By Brian Paradza, CFA at The Motley Fool Canada

The pursuit of reliable passive income often leads Canadian investors toward the familiar corridors of the real estate sector. However, the market has a way of testing our patience. Even when fundamentals are firing on all cylinders, stock prices can lag behind the actual value of the assets they represent. Today, one of Canada’s largest retail landlords with a monthly dividend that yields 5.5% annually, RioCan Real Estate Investment Trust (TSX:REI.UN), or RioCan REIT, presents exactly this kind of monthly dividend stock investment opportunity.

While REI.UN units have enjoyed a 23% gain over the past 12 months, they remain roughly 20% below their 2022 peaks of approximately $26. This persistent pullback has created a valuation disconnect that is becoming increasingly difficult for income seekers to ignore.

A massive vote of confidence on RioCan REIT’s future financial trajectory

The most compelling price recovery catalyst for RioCan REIT units arrived just two months ago. In February 2026, Morningstar DBRS revised RioCan’s investment-grade BBB credit rating trend to Positive from Stable. This shift in sentiment was a major signal to the market. It suggests that despite the noise of the broader economy, RioCan’s balance sheet and operational strategy are successfully navigating a higher-for-longer interest rate environment.

Improving debt coverage metrics, supported by a $1.5 billion liquidity cushion, back the latest credit rating “upgrade”. For a business that effectively acts as a corporate structure compelled to pay you a cut of its annual profits, a strengthening balance sheet is the ultimate safety net for your monthly distributions.

Speaking of distribution safety, RioCan REIT’s distributions for 2025 represented 90% of its core adjusted funds from operations (AFFO). Management targets the AFFO payout rate to fall to 80% by 2028. AFFO measures the most distributable cash flow from rental income.

RioCan’s urban moat supporting long-term dividend investment mandates

RioCan’s Major Market strategy is the engine behind its operational resilience. Approximately 90% of its rent is generated in Canada’s six largest urban centers, with a heavy concentration in transit-oriented locations in the Greater Toronto Area. If e-commerce ever intended to kill retail, RioCan has proven that necessity-based shopping is here to stay.

The trust currently boasts a record-high retail occupancy rate of 98.5%. Because its tenant base is anchored by “all-weather” essentials like groceries, pharmacies, and liquor stores, RioCan maintains defensive moats during recessions. High demand for its space is allowing the trust to flex its pricing power. In early 2026, RioCan reported aggressive leasing spreads of 21.1%, including massive 37.3% spreads on new leases during the fourth quarter of 2025.

Beyond simple retail, the trust is successfully evolving through its mixed-use “RioCan Living” portfolio developments. What was once a capital-intensive development pipeline is now transitioning into a stable contributor of Funds From Operations (FFO) as high-density residential projects come online in supply-constrained urban markets.

The price makes sense

The bull case for RioCan REIT is grounded in a significant discount to its intrinsic value. At writing, REI.UN units traded around $21.03, yet their Net Asset Value (NAV) could be sitting between $27.00 and $28.00 per unit today. New investors can effectively buy a slice of Canada’s premium real estate at a 20% to 25% discount.

Looking at portfolio cash flow, RioCan REIT trades at a price-to-FFO multiple of approximately 11.5 times based on its 2025 FFO of $1.87 per unit. This is noticeably lower than its five-year historical average, which typically ranges between 13 times and 14 times.

For income-focused investors, the reward for patiently holding RioCan REIT units is a 5.5% distribution yield, paid in monthly installments that have been increasing for four consecutive years now.

While these distributions are steady and desirable today, there was formerly trouble. The REIT had to reset its payout in 2021 to better execute its current growth strategy while repurchasing units.

Take note that distributions from REITs are generally taxable as ordinary income. To maximize your returns, it is often best to stash these units in a tax-advantaged account like the Tax-Free Savings Account (TFSA) to keep the taxman away from your monthly cheques.

The post 1 Dividend Stock That Looks Like an Easy Decision to Buy on a Pullback appeared first on The Motley Fool Canada.

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Fool contributor Brian Paradza has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

2026