TSX Investors: 1 Hidden Gem for Passive Income

SmartCentres REIT (TSX:SRU.UN) is a retail REIT that may be too cheap to ignore, even as more macro headwinds approach this spring.

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There are many great hidden gems hiding on the TSX Index. And you really don’t need to look far to score a great deal as volatility continues to send broader markets swinging wildly in both directions. It’s been a strong start to the year. But headwinds remain, and there’s plenty to worry about, as investors brace for even higher rates.

As a self-guided investor, there’s no point in worrying about what everyone else is feeling the jitters over. While it’s important to understand the risks, it’s also vital to filter out the short-term-focused news that won’t help you from the news that can actually help you get a better bang for your buck.

Now that Fed fears have returned following Powell’s hawkish words, investors should be ready, with cash on hand, to take advantage of any dips. Indeed, such dips may or may not accompany a swift bounce back. After all, it remains unclear as to whether the bear market has concluded.

If you’re invested for the decades, you really don’t need to care about the specifics of the Fed’s timeline. You don’t need rate cuts to come into play this year to do well over time. What you do need is a long-term mindset and the ability to act in those brief moments of panic.

Passive-income investors: Don’t pass up on market bargains amid renewed Fed jitters

Indeed, 2020 gave investors a short window of opportunity to grab unprecedented bargains. The steady downward slide of 2022 hasn’t granted the same buying opportunities. However, the risk/reward scenario seems to be getting better with every panic-driven pullback. In due time, rates will peak, and cuts may be considered. For now, though, many investors will find it hard to look past recession- and rate-driven headwinds that’ll surely weigh on nearer-term fundamentals.

In this piece, we’ll look at a cheap real estate investment trust (REIT) that can pay Canadian investors to wait and ride out a storm that will pass in due time.

Enter SmartCentres REIT (TSX:SRU.UN), a shopping centre REIT that many investors may be heavily discounted, as we face yet another recession.

SmartCentres: Ready to face another downturn

Retail REITs don’t tend to get a lot of love in the face of a recession. Still, SmartCentres stands above its peers. The REIT houses many high-quality tenants that can sustain the pressures that come with downturns. During the 2020 COVID-19 recession, SmartCentres managed to keep its distribution intact, even as non-essential retailers were forced to close their doors. Thank to Smart’s Walmart anchor, the retail REIT was able to hold its own, while many of its REIT peers folded under the pressure.

Nobody knows just how hard the next recession will hit. But I’d argue that if Smart can make it through lockdowns, it can survive a mild economic slide.

Looking further out, Smart is slated to continue diversifying into residential properties. Smart is still very much a retail REIT, but with residential mixed in, I think investors could reward the REIT with a higher multiple.

With a juicy 6.77% yield, I’d look no further than the name if you seek the perfect mix of passive income and value.

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 positions in SmartCentres Real Estate Investment Trust. The Motley Fool recommends SmartCentres Real Estate Investment Trust and Walmart. The Motley Fool has a disclosure policy.

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