Historically, the markets returned an average of 7%. Today these two companies provide higher returns than 7% based on their current yields. They currently yield up to 10.2% due to their recent price dips. That means that if these companies bounce back to the norm, you will get some nice capital gains along with the high yield.
In the short term the prices of these companies will likely remain volatile, but you can receive monthly income from them in the meantime.
Crescent Point Energy
The plummet of the oil price, in addition to the recent acquisition of Legacy Oil Plus Gas Inc., dragged down the price of Crescent Point Energy. The drag in price can’t be helped because it was funded by partial debt and equity. Whenever more debt and dilution of shareholder equity is involved, the price gets dragged down.
For current Crescent Point investors, the important thing to know is that this development adds to Crescent Point’s asset mix and lowers its payout ratio, making the dividend more secure.
Today, at a reduced price and lower risk, investors can pick up Crescent Point shares at $27 with a 10.2% yield. Anytime Crescent Point shares hit over the 10% yield mark, it looks attractive. Not too long ago, its yield oscillated between 5.5-6.5%.
Northwest Healthcare Properties REIT
Northwest Healthcare Properties is an opportunity to capitalize on the growing aging population. Its initial public offering was in March 2010, and it calls itself Canada’s healthcare landlord because it owns medical office buildings and hospitals in Canada. Further, on May 15 it combined with its international counterpart that owns similar global properties.
This transaction resulted in a globally diversified healthcare real estate investment trust with over $2 billion of assets. The net operating income sources after the combination is as follows: Canada (60%), Brazil (23%), Australasia (10%), and Germany (7%), while the asset mix is 68% medical office buildings and 32% hospitals.
The healthcare REIT has a diversified portfolio of 123 income-producing properties and 7.8 million square feet of gross leasable area across major markets in Canada, Brazil, Germany, Australia, and New Zealand.
It collects rents so you don’t have to. Its portfolio of medical office buildings, clinics, and hospitals have long-term indexed leases and stable occupancies, so investors can sit back and be reassured that the monthly paychecks will continue to appear in their accounts.
At $8.2 per unit, Northwest Healthcare Properties yields an attractive 9.7% with potential for double-digit capital gains.
If you don’t mind tracking the cost basis, it’s actually tax efficient to hold REITs in a non-registered (taxable) account if a large portion of their distributions is return of capital. Essentially, the return of capital reduces the cost basis and so is taxed on the sale of the REIT units or until your adjusted cost basis becomes negative.
However, if you wish to avoid this hassle, then you should purchase REITs in your TFSA or RRSP.
Investors should be aware that interest rates are at historical lows and that any hint or reality of moving up will likely cause high-yield companies to dip further. Still, if you seek income today and believe in the business models of these two companies, I think it’s a good time to take a look at them.
To sum it up, after Crescent Point dipped 44% from its 52-week high, it now yields over 10%. Income seekers should consider its shares for a high income. What’s more, investors can diversify the risk to get a high income by buying some units of Northwest Healthcare Properties after its 20% dip from its 52-week high.
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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 Kay Ng owns shares of Crescent Point and units of Northwest Healthcare.