1 of the Best Canadian REITs Just Went on Sale!

This REIT’s distribution is more than safe, even if a recession is imminent.

| More on:
edit Sale sign, value, discount

Image source: Getty Images

Dividend stocks have taken a one-two hit to the chin over the past year. Though they’ve held their own in the early innings of the tech-fueled market correction, they’ve finally shown signs of weakness. Undoubtedly, the bubbly parts of this market (most notably in high-multiple tech) have caused jitters to spread across other areas of the market, including those rich with value.

Indeed, a full-blown market crash could still be on the table, as the Fed tightens in a move to bring inflation back down. Though the Fed has no intention of 75 bps hikes in one go, the bond market seems to think otherwise.

Now, the bond market has been quite jittery, and the angst has spread to the stock market. With nothing but negative headlines and various pundits warning the worst has yet to come, it’s not a mystery as to why nobody wants to be a contrarian anymore. Buying dips has been met with punishment. And retail investors are starting to run out of patience and liquidity.

Opportunity in the REIT space

The pain in the bond markets has spread to the REIT space, too. With high-quality REITs all on the retreat, including industrial property powerhouse Granite REIT (TSX:GRT.UN) slipping slightly.

While REITs are not free from risk (GRT.UN fell over 2% on Monday), the asset class will be less volatile than the indices or even crypto. Indeed, 2022 is a year where investors with the least losses come out on top! So, if you can take a 2% hit on a 5% down day for markets, you’re faring better than most.

It’s not just lower volatility that should have investors excited about REITs; their yields get bigger as shares fall. Unlike growth stocks, REITs have yields that swell on pullbacks. It’s these yields that are so enticing and rewarding to long-term dip buyers.

Granite REIT: Worth buying on the dip

Granite is one of few industrial/warehouse REITs left in Canada. Undoubtedly, many Canadian industrial REITs have been acquired in recent years. After enduring a painful slide, shares of Granite boast a 3.7% yield. That’s pretty high for a REIT that’s on the right side of a strong secular trend.

At writing, Granite REIT fell into bear market territory, and it’s unclear as to when the selling will end. Undoubtedly, the industrial REIT enjoyed plenty of capital gains over the years. It’s arguable that it’s more stock-like than REIT-like, given the company’s knack for creating value via acquisitions.

The recent plunge may be a cause for concern for some. However, I view the dip as more of a buying opportunity. The economy could take a step or two back, but don’t count on a distribution cut. Though Granite is exposed to cyclical firms — think auto parts — the REIT’s distribution is more than safe, even if a recession is imminent.

The bottom line

REITs are feeling the pain these days, too. Investors can take advantage of the excessive selling by picking up shares of quality companies like Granite while they experience a rare pullback. Granite’s distribution could test 4% if this selloff extends. In any case, investors should expect near-term pain, but for long-term gain — not just in terms of capital gains in a rebound, but a higher-than-average dividend yield.

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. The Motley Fool recommends GRANITE REAL ESTATE INVESTMENT TRUST.

More on Investing

analyze data
Metals and Mining Stocks

3 Under-the-Radar Commodity Stocks to Buy

Three commodity stocks are likely to break out soon if inventories in metals markets continue to decline or demand outpaces…

Read more »

Oil pumps against sunset
Energy Stocks

Is it a Good Time to Buy in the Energy Sector?

Boosted by a very bullish supply/demand environment, energy stocks like Canadian Natural Resources and Tourmaline have much further to go.

Read more »

Investing

2 Stocks to Buy Offering Better Value Than Air Canada

Air Canada has been a popular stock for years, but despite its low price, these two picks are much better…

Read more »

money cash dividends
Investing

How to Make $373/Month in Passive Income With These 2 TSX Stocks

You could bring in passive income of $4,482 annually, or $373 per month!

Read more »

clock time
Stocks for Beginners

3 Stocks to Start Investing Today

Looking for a set of stocks to start investing today? Here are some great options that offer growth and income…

Read more »

investment research
Dividend Stocks

Young Investors: Create Cash Flow With This Top Dividend Stock

If you're a young investor looking for cash flow, you need a strong dividend stock and solid banking program designed…

Read more »

Illustration of bull and bear
Investing

Is the Stock Market Selloff Over?

Throughout this week, many stocks have been gaining value and rebounding from their lows. So, is the stock market selloff…

Read more »

potted green plant grows up in arrow shape
Investing

Retirement 101: How Investors Can Turn $20,000 Into $500,000 in 25 Years

These top TSX dividend stocks have made some investors rich.

Read more »