Interest Rates: How to Invest Now No Matter What the Bank of Canada Does Next

Interest rates are now at 5% in Canada, with only a slight breather before another potential hike in September. Here’s how to fight back.

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It happened again. The Bank of Canada recently increased interest rates for yet another month, bringing the interest rate to 5% as of writing. Canadians get a bit of relief, however, as the next proposed rate hike isn’t expected until September.

In that time, it might be a good idea to start figuring out how to fight back against these rate hikes. Inflation may be down year over year, but those prices are still up from 2021 levels. So, there really isn’t much give when it comes to creating cash.

That is, unless you start investing.

How investing helps

If the interest rate is currently at 5%, finding passive income and fixed income can be a lifesaver for your wallet. That’s even if you pick a stock that right now isn’t doing so great but should certainly turn around once rate hikes come to an end.

For example, the real estate sector has long been a great place to invest for passive income. Yet with the housing industry in turmoil, high inflation causing less consumption, and high interest rates leading to lower lease renewals, many Canadians have seen their shares drop in this sector.

However, the drop has brought about higher dividend yields in the process. These yields can help you battle back interest rates if you’re able to find yields far higher than normal. Today, we’re going to look at an example.

Choice Properties REIT

Let’s say you’re an investor interested in buying a real estate investment trust (REIT). A great option in the past has been Choice Properties REIT (TSX:CHP.UN). The company has a large portfolio — one of the largest in Canada. Its assets include a variety of real estate properties, including residential, essential, and work related. Moreover, many of these are mixed-use properties, with residents able to live, shop and even work in the same building.

Another bonus has been that Loblaw is one of the company’s biggest clients. Canada’s largest grocery retailer was able to continue paying its rent with little issue thanks to being an essential service during the pandemic. Choice REIT, while it didn’t come out unscathed, was likely able to bring in more than its peers.

Yet the movement in share price would tell a different story. Shares of Choice REIT are down 3.5% in the last year and 13% in the last six months. The real estate market being what it is continues to keep investors skittish, and that’s brought Choice REIT into value territory.

The good news around Choice REIT

The good news is that Choice REIT is now a valuable stock for investors to consider after all these drops. The company has come off a rough quarter, and it continues to hurt share prices. However, with the economy showing signs of easing, the next quarter should be more promising.

During its first-quarter results, Choice REIT reported net income of $270.8 million, with $268 million in transactions. This included $192 million in acquisitions and $76 million in dispositions. While net income fell, overall resiliency in the company climbed.

Its occupancy ended the quarter at 97.7%, with its retail, industrial and mixed-use properties showing an increase by 3.4%, 8.8% and 14.3%, respectively. Further, it acquired an additional three Loblaw properties for $99.1 million. There were several other key acquisitions that should deliver cash flow almost immediately and could certainly bring the company’s net income up to snuff.

Bottom line

Shares of Choice REIT now trade at 15.54 times earnings, with a dividend yield at 5.55%. That yield is higher than the five-year average as well, making it a great deal with an even better dividend. What’s more, that’s higher than the current interest rate! You could see a recovery in returns as well as higher passive income that could last a lifetime — far beyond how long the current interest rate will last.

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 Amy Legate-Wolfe has positions in Loblaw Companies. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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