Sometimes, due to various micro or macroeconomic factors, both high-growth and high-yield equities are available to investors at bargain levels. Given the uncertain economic roadmap ahead, I expect to see even better valuations form, as investors price in what could be an incoming recession in the next year or two.
If we do get some sort of economic event on the horizon, now is the time for investors to prepare their buy list. I think a once-in-a-decade opportunity is ahead of us, with some income stocks providing big upside potential from here. These are the top two stocks in this category I’m likely to bet on when the going gets tough.
Top income stocks to buy: Restaurant Brands
Restaurant Brands (TSX:QSR) is one of the biggest quick-service restaurant operators in Canada. The company’s position as a leading global conglomerate of fast-food brands (including Tim Horton’s, Burger King, Popeyes Louisiana Kitchen, and Firehouse Subs) allows investors to benefit from a relatively defensive position in this uncertain environment.
Like the other stock on this list, Restaurant Brands pays dividends. The company’s current yield of roughly 3.2% is juicy, given the company’s growth prospects and recent results. In Restaurant Brands’s second-quarter (Q2) report, the company touted year-over-year system-wide sales growth of 14%, with net comparable sales surging by 9.6%. If this organic growth continues and can be supplemented by the company’s international expansion plans, there’s a lot to like about the company’s ability to raise its dividend over time.
This view is supplemented by reports earlier this month that the company is planning on repurchasing another US$1 billion of common shares over the next two years. Indeed, only a company with a rock-solid financial position would make such moves. I view Restaurant Brands as among the most stable long-term income stocks investors should buy when things start to hit the fan.
SmartCentres REIT
SmartCentres REIT (TSX:SRU.UN) is one of the biggest fully integrated real estate investment trusts (REITs) in Canada. It has around 34.9 million square feet of income-producing assets all across the country.
A significant advantage of holding this company is that it provides dividends on a monthly basis. The latest reports state that for August, this REIT declared a dividend payment of $0.15 per unit. This indicates a payout ratio of 73.04% and a dividend yield of 7.6%, which is significantly higher than the 3.9% sectorial average.
Notably, REITs are viewed as vehicles for investors seeking passive income. However, in times of economic trouble, many retail REITs (such as SmartCentre) have declined in value. Personally, this is one of those opportunities that I think investors are better suited to wait on. When times get tough, SmartCentres’s valuation usually takes a hit. However, given the strength of the company’s core anchor tenants and clientele, this is a company that almost always rebounds in short order, benefiting investors who locked in sky-high yields during the turmoil.
