Most do-it-yourself investors don’t necessarily want to spend a whole lot of their time managing their stock portfolios. If so, a practical and rewarding way to invest is to buy quality businesses that offer good income when they are trading at good valuations.
The value and dividend investing approach allows you to earn impressive income, while letting the investments to appreciate over time. The income is the periodic reward that investors get, and it encourages long-term holding of the stocks.
Brookfield Property Partners LP. (TSX:BPY.UN)(NASDAQ:BPY) and Algonquin Power & Utilities Corp. (TSX:AQN)(NYSE:AQN) both have the ability to carry on generating sufficient cash flow to pay their dividends and grow their businesses.
Brookfield Property and Algonquin offer quarterly distributions in the U.S. currency. So, their effective distribution yields will fluctuate with the strength of the U.S. dollar against the Canadian dollar, if unitholders opt to receive the distribution in the Canadian currency. The stocks currently offer lucrative yields of about 6.5% and 5.3%, respectively.
Brookfield Property makes an excellent holding in an RRSP right now because more than half of its distribution so far this year is interest income sourced from the U.S. If investors hold the stock in a TFSA or non-registered account, there will be a withholding tax on that foreign income.
Algonquin offers eligible Canadian dividends. So, it’s fine to hold it in any of the investment accounts. Both companies will continue to increase their distributions. Brookfield Property aims to increase its distribution per unit by 5-8% per year, while Algonquin aims to increase its dividend per share by about 10% per year.
Good businesses for long-term holding
Brookfield Property makes a good long-term holding, because the underlying real estate assets are inherently long-term investments — you don’t go out and buy office towers, malls, or condos, etc. and sell them a year after. Instead, real estate assets are valuable for their cash flow-generating capability for the long haul.
Brookfield Property’s core office and retail portfolios are top notch. In its May presentation, the company highlighted that its core office portfolio was 92.6% leased with an average lease term of 8.7 years, and it had 8% mark-to-market opportunity on expiring leases. The occupancy rate for its core retail portfolio was 94.3%. This portfolio had average rent spreads of 21% for leases commencing in the trailing 12 months.
Algonquin has regulated electric, natural gas, water distribution and wastewater collection utility systems, and transmission operations in the U.S., as well as facilities powered by wind, solar, or hydro. Since much of Algonquin’s cash flow is either regulated or backed by long-term power-purchase agreements, its dividend is very predictable.
Brookfield Property and Algonquin are essentially cash cows. They are fitting long-term investments that offer starting yields of 5.3 and 6.5%, respectively, as well as future dividend growth. They also have growth potential with long-term total returns estimations of more than 10%. Investors can pretty much buy them now and watch the income roll in for the long haul.
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 Algonquin and Brookfield Property Partners.