Why These 3 REITs Are the Perfect Addition to Your Portfolio

It’s only a matter of time until the next downturn. Be proactive and add these REITs to your portfolio now, before everyone panics.

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The Motley Fool

We’re well into year six of a practically uninterrupted bull market, and a number of analysts and pundits are getting nervous.

What will cause the next correction? Will it be geopolitical events, like the situation in Israel? Will the newest airline tragedy from the Ukraine spark some sort of international incident? Or, perhaps Canada will suffer from something a little more local in nature, like a crash in the housing market, weakness for energy and natural resources, or something as mundane as tepid job growth combined with higher interest rates.

While I don’t see any of these events as likely to happen, it’s generally pretty hard to predict what will cause the next downturn. It’s usually something we all didn’t suspect.

As we all know, there are certain sectors that tend to protect capital during downturns in the market. REITs are a big one, since generally people (and businesses) still need a place to call home, even during tough economic times. Plus, generous REIT dividends tend to attract investors moving out of volatile stocks.

Nobody knows when the next downturn is coming. The time to prepare is now, before investors get distracted by the noise. Here are three REITs to add to your portfolio now, before everyone else does.

RioCan

Investors should be attracted to the best the sector has to offer, especially during a market downturn. And in the REIT world, RioCan (TSX: REI.UN) is a cut above the rest.

Not only is the company Canada’s largest REIT, but it also has a sizable operation in the U.S., accounting for about 15% of its revenue. The U.S. expansion is the exciting part, since opportunities exist down south that have much higher returns than comparable deals in Canada, thanks to the real estate meltdown of a few years ago.

Plus, the company’s portfolio in Canada is nothing less than stellar. It’s diversified across the country, and isn’t concentrated on one type of retailer or company. Canada’s top retailers dominate the list of its largest tenants, including Loblaw, Canadian Tire, and Walmart, but they’re each just a small percentage of total rents.

Plus, the stock currently yields more than 5%. Don’t expect huge dividend increases, but the high current yield makes up for it. Most REITs are all about stability, not growth.

Dream Office REIT

Keeping with the buy quality theme, next up is Dream Office REIT (TSX: D.UN), the largest owner of office space in Canada, with more than 24 million square feet of leasable area.

Like with RioCan, Dream has some of Canada’s most secure companies as tenants, as well as various levels of government. Its buildings are located in terrific locations, often in the downtown core, primarily focused on Calgary and Toronto, which are two of the fastest growing cities in the country.

The stock has experienced some weakness over the last year, thanks to somewhat weak occupancy rates. But the monthly dividend is safe, and the yield is very attractive, coming in at 7.8%. These low levels represent a terrific entry point.

H&R REIT

Investors looking for REIT diversification can find it just by investing in H&R REIT (TSX: HR.UN), which has a mixture of retail, commercial, and industrial properties located in both Canada and the U.S. in its portfolio. The company currently holds 164 retail properties, 112 industrial properties, and 41 office buildings.

The REIT took a big step forward when it acquired Primaris in 2013, which increased revenue nearly 50%. Many investors weren’t happy about the deal, sending shares lower. They’ve since recovered, but investors are still treated to a 5.8% distribution. And unlike most other names in the sector, H&R has a history of raising its dividend, which it’s done five times since 2009.

Like with RioCan, the exciting prospect of owning this REIT is the potential for more U.S. expansion. H&R offers the unique opportunity of safety combined with potential growth.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Nelson Smith has no position in any stocks mentioned.

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