These REITs Have 5-6% Dividend Yields: Are They Bargains?

RioCan Real Estate Investment Trust (TSX:REI.UN) and H&R Real Estate Investment Trust (TSX:HR.UN) boasts an impressive yield amid volatility in the real estate market.

| More on:

The spillover from the woes of Home Capital Group Inc. has caused experts and analysts to take a second look at REITs in a choppy market. A slump in oil prices has brought down demand for development in western Canada. The Ontario government has floated the possibility of further rent controls in response to an affordability crisis.

There is also concern that rising rates will threaten the acquisition growth strategy undertaken by REITs. Let’s take a look at two REITs with multi-billion dollar market caps to see where the companies may be headed for the remainder of 2017.

RioCan Real Estate Investment Trust

RioCan Real Estate Investment Trust (TSX:REI.UN) stock has seen a 10% decline in 2017. The trust owns and operates Canada’s portfolio of shopping centres with ownership interests in approximately 300 retail and mixed-use properties. It has been a little over a year since the share price peaked in July 2016 at $29.49. As of July 28, the stock is valued at $23.99. The company has announced a dividend of $0.12 per share at a yield of 5.9%.

RioCan released its first-quarter results on May 12. Operating income grew to $179 million from $170 million — an increase of 5.3% from Q1 2016. Revenue was up 2.1% to $290 million compared to $284 million the same period in the previous year. The company is set to release its second-quarter earnings on August 3, 2017.

H&R Real Estate Investment Trust

The share price of H&R Real Estate Investment Trust (TSX:HR.UN) has experienced a drop of 5% in 2017. It has fallen 8% since May 1. H&R is Canada’s largest diversified REIT with total assets of approximately $14 billion.

On May 15, H&R announced its first-quarter results. Between January 1, 2016, and March 31, 2017, H&R sold investment properties for proceeds of $1.03 billion and acquired $380.6 million in new properties and developments. Its debt-to-total-assets ratio was 43.5% compared to 46.4% in the same period in 2016. The stock boasts a dividend of $0.12 per share at a yield of 6.5%.

Should you buy the dip?

In light of declines experienced in 2017, both of these stocks are hovering around 52-week lows. RioCan has a great deal of exposure to the retail industry with its portfolio of shopping malls and similar properties. The rise of online shopping and the drawdown in traffic within malls may give investors pause.

H&R has improved its balance sheet and aggressively paid down debt year over year by selling a multitude of investment properties. This company is slightly more diversified with 38 office properties, 101 industrial properties, 16 residential and development properties — in addition to the 153 retail properties the company owns.

Investors seeking income can justify adding both of these companies to their portfolio for an impressive dividend yield. Even in light of a recent hike, rates remain at historic lows, which should be a friendly environment for REITs.

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 Ambrose O'Callaghan has no position in any stocks mentioned.

More on Investing

A cannabis plant grows.
Cannabis Stocks

Canopy Growth Stock Is Rising But I’m Worried About This One Thing

Canopy Growth stock is soaring as the legalization effort makes real progress in both Germany and the United States.

Read more »

young woman celebrating a victory while working with mobile phone in the office
Investing

3 Roaring Stocks to Hold for the Next 20 Years

These top TSX stocks are excellent long-term buys, given their multi-year growth potential and solid underlying businesses.

Read more »

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

grow dividends
Investing

Here’s My Top 3 TSX Stocks to Buy Right Now

Even though the TSX has been rising, there are still some good bargains out there. Here are three top compounding…

Read more »

Target. Stand out from the crowd
Investing

Prediction: This Canadian Growth Stock Could Double by 2030

Alimentation Couche-Tard (TSX:ATD) is a top growth stock that could do well over the next six or so years.

Read more »

Businessman holding AI cloud
Tech Stocks

Could Investing $20,000 in Nvidia Make You a Millionaire?

Nvidia stock has made investors millionaires in the last 10 years. Is it too late to invest to become a…

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

money cash dividends
Stocks for Beginners

Have $500? 3 Absurdly Cheap Stocks Long-Term Investors Should Buy Right Now

If you're looking for cheap stocks, these three have a huge future ahead of them, all while costing far less…

Read more »