Forget Buying a House: Buy These Income Generators Instead

These companies will all be just fine, no matter what happens in Canada’s housing market.

| More on:

In the past, many believed that the safest investment you could make was buying a house. After all, houses aren’t going to be crushed by competitors, or spend capital unwisely, or go bankrupt. They’ll always still be there, no matter how the economy is faring. And even if you don’t need another place to live, you can always use the property to generate rental income.

After the housing crisis, perceptions have changed dramatically. And even though Canada hasn’t suffered the same crash as our neighbours to the south, many are worried that our housing market is overvalued, and due for a correction.

Fortunately, there are stocks that offer similar benefits as real estate. Below we look at three examples.

1. SNC Lavalin

SNC Lavalin (TSX: SNC) is Canada’s top engineering & construction firm, with revenue last year of nearly $8 billion. And there are numerous reasons why SNC’s earnings are safer than owning a house.

For one, there’s more diversification. Last year, no industry segment accounted for even a quarter of SNC’s revenue, and the company also earned a third of its revenue from outside of Canada. The most cyclical sectors – mining & metallurgy and oil & gas – only accounted for a quarter of revenue.

Secondly, SNC has a portfolio of very stable assets, including a 16.8% stake in Highway 407 outside of Toronto. So as long as Torontonians hate traffic, SNC should continue to generate plenty of income.

2. Royal Bank

It’s true that there are plenty of concerns about Canadian real estate, and a downturn would not be good for Canada’s banks. But like SNC, Canada’s banks have plenty of diversification, with Royal Bank of Canada (TSX: RY)(NYSE: RY) being a perfect example.

While RBC does make plenty of money off of Canadian banking, it also has large capital markets and wealth management businesses, which are expanding mainly outside of Canada. To illustrate, last year 36% of RBC’s net income came outside of Canada’s borders. Back in 2010, that number was less than 19%.

Even within Canada, offering mortgages isn’t particularly risky – for example loan losses on mortgages were only $41 million last year on a total portfolio of $200 billion. So even if housing does suffer a correction, and loan losses from mortgages double, you shouldn’t get burned too badly.

3. TransCanada

It’s hard to find an industry in Canada more secure than the pipelines. These companies operate critical infrastructure, sign long-term contracts, and are facing plenty of increasing production from the energy sector.

TransCanada (TSX: TRP)(NYSE: TRP) is one of the most attractive pipeline stocks available, with a 3.6% dividend. And of course a housing correction will have little to no effect on the company.

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 Benjamin Sinclair has no position in any stocks mentioned.

More on Investing

Dividend Stocks

Enbridge Is a High-Yielding Canadian Dividend Stock to Buy Now and Own Forever

Are you looking for a high-yielding Canadian dividend stock to buy? Enbridge (TSX:ENB) has plenty to offer investors.

Read more »

sale discount best price
Stocks for Beginners

3 TSX Growth Stocks You Can Buy at a Screaming Discount

These three growth stocks remain screaming buys, given their track records of growth and future opportunities for investors.

Read more »

Retirees sip their morning coffee outside.
Dividend Stocks

Why I’d Buy These 2 Healthcare Stocks Today (Besides the Cheap $10 Price)

Two small-cap stocks trading under $10 worth buying right now as promising healthcare plays in 2023.

Read more »

woman data analyze

Better Buy: Telus Stock or BCE?

Telus (TSX:T) and BCE (TSX:BCE) are dividend-growth stocks that seem like worthy pick-ups ahead of a recession year.

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

3 Dividend Stocks to Build Wealth in the New Year

These dividend stocks have proven they're set up for a strong future and have dividends you'll want to lock up…

Read more »

Dad and son having fun outdoor. Healthy living concept
Tech Stocks

Prediction: These Will Be 2 of the Strongest TSX Stocks in 2023

Tech stocks may have dropped during the last few years, but these two TSX stocks are bound for major growth…

Read more »

edit Person using calculator next to charts and graphs
Tech Stocks

This 1 Tech Stock Is My Hands-Down Choice Over Shopify

A small-cap tech stock with consistent revenue growth and nearly 300% profit growth is a better option over the TSX's…

Read more »

money cash dividends
Top TSX Stocks

Sitting on Cash? These 2 TSX Stocks Are Great Buys

Given their solid business models and stable cash flows, these TSX stocks could be steady investments in this volatile market.

Read more »