If you’re an income investor looking to give your passive income a bump, then you may want to consider high-quality REITs that are priced at a discount. Interest rates are going to go up over the next few years, and the high-flying days of the REITs may soon come to an end, but that doesn’t mean you should ignore REITs entirely. They’re still a fantastic long-term asset class for those who seek stability and high dividend payouts.
It’s important to be realistic about your expected returns before making an investment. I believe you can still do very well if you but terrific REITs that have a high and stable dividend yield as well as a considerable amount of growth potential, so you can see consistent dividend increases over the next few years.
Canadian Apartment Properties REIT (TSX:CAR.UN) and Choice Properties Real Estate Investment Trust (TSX:CHP.UN) are two great REITs that will allow you to enjoy the feast of rental payments without the indigestion of having to become a landlord.
Canadian Apartment Properties REIT
This REIT has been a huge winner over the last few years. Investors have enjoyed capital gains as well as a generous dividend payout. The stock currently yields a delicious 4% and is in the process of rebounding from a mild sell-off that occurred during the summer of last year.
The balance sheet is strong, and although the dividend isn’t gigantic, it’s one of the safest out there. The dividend was kept intact even during the Great Recession. The management team is shareholder friendly, and it’s expected that they’ll consistently increase the dividend as the company’s free cash flow grows.
Canadian housing prices are ridiculously expensive, and more people are opting to rent rather than burden themselves with a huge mortgage. Going forward, it’s expected that occupancy levels will go up and rents will increase by a considerable amount.
The stock is also ridiculously cheap with a 9.68 price-to-earnings multiple. If you want stable income that will grow over the long term, then you should probably pick up shares today.
Choice Properties REIT
This REIT pays a fat 5.24% dividend yield and is on sale right now. The REIT owns over 43.3 million square feet worth of leasable area across Canada and is a terrific play for investors wanting to get a double dose of defence. The company specializes in supermarket shopping centres, and we all know that supermarkets are some of the most defensive names out there. Everybody needs food, even if the economy takes a nosedive, so you don’t have to worry about increasing vacancy rates like with a residential REIT.
Choice REIT CEO John Morrison brings over 35 years of real estate experience to the table, so you can count on him to bring a huge amount of value to the management team.
The stock has been facing some major negative momentum lately, so make sure you buy the stock incrementally on the way down.
This market is starting to get unpredictable; many pundits believe stocks are as overvalued as they’ve been in ages. If you’re worried that the market is getting too frothy, then buy undervalued dividend-paying stocks like these two REITs. You’ll have the income flowing in whether the market goes up or down. REITs may not be the powerhouses they were a few years ago, but you can still do well by buying well-run REITs at great prices.
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Fool contributor Joey Frenette has no position in any stocks mentioned.