It’s a tough time to be a retiree, especially for those who found themselves overinvested in stocks prior to the coronavirus crash. For retirees with ample liquidity, however, such crashes may prove to be rare opportunities to lock-in outsized distributions at unfathomably low prices.
Mr. Market cracked open the retirement nest eggs of many Canadians over the past month. While it may feel reckless to go against the grain given the possibility that volatility could reverse sharply without a moment’s notice, it does make sense to look to some of the severely-battered bargains in the REIT space that now have swollen double-digit yields that much safer than they seem.
Office and retail REITs have taken a brunt of the damage over the past two months as COVID-19 has caused many people to work and shop from home to avoid contracting the coronavirus.
Many plays within these real estate sub-industries now offer more than twice the yield for less than half the price. This piece will look at two top double-digit yielding REITs that could stand to correct to the upside over the next three years.
Market crashes are no doubt devastating for retirees. But for retirees who were fortunate enough to have ample cash on the sidelines, crashes can be an opportunity to lock-in colossal yields for absurdly low prices.
Rent deferral programs, delayed government assistance to small- and medium-sized businesses unable to make rent, and all the sort may pressure the large distributions of the REITs over the near-term.
As the pandemic passes and the economy recovers, some of the high-quality retail and office REITs may be best poised to bounce back while keeping distributions intact as the world looks to make a return to normalcy.
A quality high-yield REIT to buy on the dip
REITs tend to exhibit a low degree of volatility until a crisis strikes. H&R REIT (TSX:HR.UN), a diversified REIT that’s heavily weighted in the office and retail real estate sub-industries, imploded a staggering 65% from peak to trough on the coronavirus crash.
Yes, office and retail real estate is the last place you want to be when there’s a lockdown, but was such a violent decline warranted given the “stable” long-term nature of real estate?
A chunk of H&R’s tenants are going to have a tough time making rent over the coming months, and while the distribution will under some pressure, the REIT will be quick to reinstate its distribution should worse come to worst.
Thus, if you’re of the belief that the coronavirus will dissipate in the second half, H&R could allow investors to lock-in the 13.4% yield alongside outsized near-term capital gains.
It’s far-fetched to hear that a REIT could double, but given the extent of the recent damage, I certainly wouldn’t rule out such a scenario. H&R REIT got walloped in 2008, but shares of the real estate kingpin were rapid to recover, and those who bought on the decline made a killing.
If you’re able, you may want to start buying the battered REIT before the yield falls back to single-digit territory as shares look to regain ground on good news relating to the coronavirus.
Stay hungry. Stay Foolish.
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 Joey Frenette has no position in any of the stocks mentioned.