The rout in the Canadian stock market is giving investors and opportunity to buy some solid companies that now offer attractive yields.
The situation is particularly appealing for people who are looking to earn income in their TFSA because fixed-income investments such as GICs simply don’t pay enough anymore.
Here are the reasons why I think income investors should consider RioCan Real Estate Investment Trust (TSX:REI.UN) and Fortis Inc. (TSX:FTS) for their next TFSA picks.
RioCan
RioCan owns more than 350 retail properties located across Canada and the United States.
The REIT sector has been under pressure in the past six months as concerns mount about a weakening Canadian economy and rising interest rates south of the border.
The concerns are certainly valid and REITs operating office buildings are definitely at risk, but the sell-off in RioCan looks a bit overdone.
Why?
The company counts some of the retail industry’s top names as anchor tenants in most of its locations. These businesses tend to sell groceries, household products, and medication, which are the everyday things people need regardless of their financial situation. The stores that target discount shoppers could actually see sales improve if the economy falters.
RioCan reported solid Q3 funds from operations of $140.2 million, or $0.44 per unit, up 5% and 1% from the same period last year.
Management is launching a new project that will see residential units built at some of the company’s top locations. If the idea takes off, investors could see a nice surge in cash flow in the coming years.
RioCan is also considering the sale of its U.S. properties, and that would generate a significant chunk of cash that could be used to pay down debt or invest in new properties.
The interest rate concerns are likely overblown as the rate increases are expected to be small and drawn out.
RioCan pays a monthly distribution of 11.75 cents per share that yields about 5.8%.
Fortis
Fortis is a utility company that operates assets in Canada, the U.S., and the Caribbean.
Last year Fortis spent $4 billion to buy Arizona-based UNS energy. The integration of the new assets has gone well, and Fortis recently hiked its dividend by 10%.
Fortis gets nearly all of its revenue from regulated assets, which means cash flow and earnings are very predictable. More than 40% of the company’s cash is generated in the U.S., so the stock is a great way for investors to benefit from the surging U.S. dollar.
Fortis has increased its dividend every year for the past four decades. The current quarterly distribution of $0.375 per share yields about 4%.
