It’s scary to be an investor these days.
Sure, the market has been on an almost uninterrupted bull rally since the end of the crisis of 2008-09, but there have been a lot of down days lately. Since peaking at 15,657 in early September, the TSX Composite Index has been on a steady march downward, closing yesterday at 14,460. We’re not quite in a correction yet (which is usually defined as a drop of 10%), but many investors are starting to get nervous. What if this is the beginning of the next bear market?
Further adding to the dilemma facing investors is the risk of interest rates increasing. So not only is there weakness in the overall market, but even low-growth, high-dividend stocks are taking it on the chin as well.
This isn’t such bad news, especially for investors who are looking for income. If the economy deteriorates and the market continues to sell off, chances are that interest rates will stay low. And if this is just a minor blip, the rest of a portfolio will continue to go up even if there is weakness in rate-sensitive names.
Besides, long-term investors shouldn’t care so much about share price. If you’re buying good companies with a dividend stream likely to continue in the future, then price should be a secondary concern. As long as those dividend cheques keep rolling in, that’s all that matters.
Thanks to the recent sell-off, there are a couple of real estate investment trusts that I think are trading at pretty attractive valuations, Dream Office REIT (TSX: D.UN) and Cominar Real Estate Investment Trust (TSX: CUF.UN). Let’s take a closer look at each.
Dream Office REIT
Dream Office REIT is one of Canada’s largest owners of office space, spread across 182 buildings and 24.5 million square feet of leasable area.
Investors are punishing the stock because it has approximately 35% of its footprint in Toronto, which is experiencing an influx of office towers coming on the market. So far, it hasn’t affected results. In fact, the company’s occupancy rate has increased lately, bumping up close to 95%.
Dream’s top tenants include some of the largest titans of Canadian business, along with various levels of government. Not only does this almost guarantee the company’s income stream, but larger operations are much more likely to renew a lease when the time comes because moving just isn’t worth the cost.
Shares currently yield 8.05%, and have outperformed the TSX Composite handily over the last month.
Cominar Real Estate Investment Trust
Cominar is Quebec’s largest commercial landlord, owning more than 39 million square feet worth of space spread across 526 properties. Additionally, it just closed an acquisition that gave it an additional 5 million square feet over 10 properties.
Even though the Quebec economy hasn’t been great, the company has still performed well. Its occupancy rate is at 94%, good enough for it to keep the payout ratio below 90%, which is management’s self-imposed limit.
Plus, the founding family also owns approximately 7% of units, which is rare for a REIT this size. I always like to see management own a large position in the company. If anyone has the inside track of what’s going on, it’s them.
Shares currently trade hands at $19, but the company’s book value is considerably more, at $22.37. Generally, you’ll see REITs trade at a level pretty close to the net value of their assets, so this represents a good value.
The yield on the current price is 7.75% if you take your dividends in cash, but investors can get an additional 5% bonus if they accept new shares instead. That bumps the yield up to an even more generous 8.14%. This is a great option for investors who don’t need the income right away.
