The holidays are just around the corner, and investors are starting to put together a list of stocks they might want to buy in 2016.
RioCan is Canada’s largest real estate investment trust. The company owns 305 retail properties in Canada and another 49 in the United States.
The stock has come down about 8% in the past six months amid concerns about the Canadian economy and rising interest rates in the United States. These are important issues to watch, but the pullback in the stock looks overdone.
RioCan’s anchor tenants tend to be big companies with strong brands that sell recession-resistant products such as groceries, discount household items, and pharmaceuticals.
This means they are more than capable of riding out an economic downturn.
Rising rates make borrowing more expensive, and REITs tend to carry a lot of debt. The interest rate moves in the U.S. are expected to be small and drawn out, so that should give RioCan ample time to adjust without a major impact to its operations.
RioCan is considering a sale of its U.S. properties. The funds from a sale could be used to pay down debt or invest in new opportunities.
The company is also in the early stages of a plan to build residential units at some of its sites. If the project is successful, investors could see solid cash flow gains in the coming years.
RioCan reported Q3 2015 funds from operation of $140.2 million, or $0.44 per unit, up 5% from the same period in 2014.
The company renewed 1.3 million square feet of space in the Canadian portfolio in Q3 at an average rent increase of 8.6%.
RioCan pays a monthly distribution of 11.75 cents per unit that yields 5.5%.
Fortis operates natural gas distribution and electricity generation assets in Canada, the U.S., and the Caribbean.
Fortis gets the majority of its revenue from regulated assets, so investors should feel comfortable with the reliability of both cash flow and earnings.
Last year’s $4 billion acquisition of Arizona-based UNS Energy and the recent completion of an expansion at a hydroelectric project in British Columbia are adding new revenues that should support dividend growth in the coming years.
Fortis recently increased the dividend by 10% to $0.375 per share. The company has hiked the payout every year for more than four decades.
The new distribution yields 4%.
The #1 income stock to own in 2016?
Fool contributor Andrew Walker has no position in any stocks mentioned.