Canada’s big three grocers are prospering in the economic chaos brought on by the Trump Administration’s trade policies, offering a safe haven for investors during a troubling time.
Even as their customers are turning to discount brands to cope with rising prices and tighter wallets, the shares of food companies have been on the rise. That’s because we need what they sell in all conditions which makes them recession resistant and to a large extent tariff proof.
Year-to-date the three are up by an average 14% at the time of writing. In the last year things are even better. Empire Co. (TSX:EMP.A), which owns Sobey’s and Farm Boy leads the way up 48%. Loblaw is next (TSX:L) at 40% just edging out Metro (TSX:MRU) at 39%. That handily beats the 16% gain for the TSX in the 52-week period.
But if the stocks are thriving amid disruption and uncertainty, their dividends have less appeal for investors seeking income. The dividends yield a meagre average of 1.3%. Empire leads with a 1.56% yield at current prices followed by Metro (1.39%) and Loblaw (0.92%).
There is another way to capture their benefits of safety along with a much higher dividend income. That is through the Real Estate Investment Trusts (REITs) that own their stores and the shopping centres where the stores are found.
Two of the three, Loblaw and Empire have spun off REITs that own, manage, and develop these properties. Their grocery stores are anchor tenants and Loblaw and Empire are majority shareholders in the REITs which is another benefit. The REITs might not offer much capital appreciation, but the dividends are attractive.
Here are some updates.
Choice Properties REIT (TSX: CHP.UN)
Current price: $14.64
Annual pay-out: $0.77 annually, paid monthly
Yield: 5.13%
Comments: Choice is Canada’s largest REIT, with 700 properties mostly in urban centres which are valued at $17 billion. These include shopping centres, commercial and industrial warehouses and residential properties.
About 81% of its tenants are necessity-based retailing such as supermarkets, pharmacies, banks and liquor stores. Another 18% are industrial warehouses and the remaining 1% are transit-oriented mixed-use and residential buildings. Choice has a 98% occupancy rate.
Loblaw’s is the biggest tenant providing 57% of revenue. Almost two-thirds of its footage are from Loblaw-owned chains which includes Shoppers Drug Mart.
Choice reported strong results for its year ended December 31.
- Portfolio Growth: In the year it closed $600 million in real estate transactions and has 44 projects under development. This will add 1.8 million square feet of new commercial and industrial space, as well as one residential rental building.
- Occupancy Rates: These remained high, with retail at 97.7%, industrial at 99%, and mixed-use/residential at 94.2%.
- Financial Metrics: Same asset, net operating income (NOI) increased by 4.2% compared to the previous year, with industrial properties showing the highest growth at 8.5%.
Distribution: In February, Choice announced a 1 cent increase in distributions to $0.77 per unit annually effective Mar. 31.
Crombie REIT (TSX: CRR.UN)
Current price: $15.10
Annual payout: $0.89, paid monthly
Yield: 5.9%
Comments: Crombie is a real estate investment trust that owns 289 Canadian grocery stores most of which anchor shopping malls.
It is 41.5% owned by Empire Co. which in turn owns Sobey’s, Safeway, and FreshCo. These grocery stores are Crombie’s major tenants. About 71% of Crombie’s rents are derived from these essential stores.
Among Crombie’s pluses are a record high occupancy rate of 96.9% in 2024. This is enhanced by its long-term relationship with its major tenant and largest shareholder Empire. Crombie offers moderate revenue growth from the development of its industrial and residential portfolio. Morningstar Research report gives Crombie a fair value estimate of $17.63, which is 19% higher than the current price.
Like Choice it has size and scale but comes with a better yield. It has a high occupancy rate and the stability that comes from having its largest shareholder as its biggest tenant.
This article appeared in a recent issue of the Income Investor. For information on how to reprint this article please view this page.
Adam Mayers 
0 comments on “Grocery REITs offer dividends and safety”