There are still some pretty impressive high-yielding Canadian stocks out there that passive-income investors may wish to consider, even as the economy runs head-on with a recession. Undoubtedly, the market has behaved rather optimistic year to date. Indeed, the recession may still be on schedule for Canada by year’s end (or 2024).
Just because a recession entails pain doesn’t mean stocks have to drop considerably in price, as they did during 2008. Historically speaking, the Great Financial Crisis suffered one of the most painful recessions in decades. Not every recession has to be destructive to wealth as the one endured in 2008. That said, recessions are never ideal.
With economic growth fading at the hands of higher interest rates, though, there’s a good chance that central banks can put down some sort of padding so that the so-called landing doesn’t cause as much damage. Indeed, it’s far better to have a predictable, more controlled recession than one caused a systemic shock.
Looking ahead, we’ll look at two passive-income-heavy REITs (real estate investment trusts) that have seen their yields swell in recent quarters.
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Passive-income power play #1: H&R REIT
H&R REIT (TSX: HR.UN) is an office- and retail-heavy REIT that got crushed during the pandemic. The rise of remote work and lockdowns caused shares to decline very quickly. To this day, shares have still yet to recover. Undoubtedly, office real estate still is not the same as it was before the pandemic. Though many folks have made a return to the office, others have continued working from home. And with a recession nearing, many firms are cutting costs from across the board. Expensive office real estate may not be a “must” anymore.
Though H&R has sold off certain assets to become more resilient in the new era, shares have still struggled to sustain a rally. Today, shares are back at $10 and change, a 52-week low. Shares could easily test their 2020 levels again. If they do, I view H&R REIT as more of a value opportunity.
The distribution has been cut. That’s never a good sign. Today, the yield sits at around 5.8%. Though I view the payout as sustainable, it’s tough to tell when the tides will turn and whether a recession could entail further pressure on the distribution.
Passive-income power play #2: Canadian Apartment Properties REIT
Canadian Apartment Properties REIT (TSX: CAR.UN), or CAPREIT, is a more comforting play for passive-income investors. The residential space seems like a better place to be right now, especially if the rise of the metaverse and remote work takes it to the next level.
Even if offices and retail REITs face pressure, I think it’s safe to say that residentials aren’t going anywhere anytime soon. Working from home can replace offices, but digital real estate and homes can’t replace residential housing.
CAPREIT shares are up 14% year to date but are still down more than 21% from all-time highs. As shares rally higher again, I’d look to the 2.95% yield as worth the price of admission. At the end of the day, CAPREIT can offer capital appreciation and distribution growth over time. Having properties in the competitive rental markets can accompany considerable upside for passive-income investors.
