The recent wave of market volatility has created some very intriguing deals within the high-yield space. Whether we’re talking about high-quality dividend stocks, royalty funds, or real estate investment trusts (REITs), I think that investors looking to such plays are on the right track. Indeed, interest rates are quite high, and they could stay high for some time.
Indeed, there’s fear that the Bank of Canada (BoC) could keep raising rates even higher, despite fears that a recession may be on the horizon. For now, inflation is winding down, but the dragon has not yet been slain. And the last innings may be the toughest for investors as additional rate hikes have a potentially lesser impact on driving down some of the most important contributors to inflation, most notably food and housing.
Necessity cost increases are still way too high as calls for lower grocery prices grow louder by the month. In any case, I think investors should look to the dividend plays as inflation fighters.
In this piece, we’ll check out three that look underpriced and ready to outperform the TSX Index over the next three years.
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SmartCentres REIT
SmartCentres REIT (TSX:SRU.UN) is a retail REIT that’s under severe pressure of late, with shares now down around 30% from their May 2022 highs. Indeed, the negative pressure is dragging shares closer to the lows of 2020. Instead of the coronavirus and lockdowns, it’s all about higher interest rates and their weight on the cash cows in the real estate scene.
Indeed, macro headwinds and a looming recession are not doing the retail REIT scene any favours. Either way, the 8.13%-yield distribution looks very bountiful, and it looks safer than many of its peers in the retail REIT space.
Of course, SRU.UN shares may be far off from any relief. But if you’re a long-term investor, I think the perfect storm of headwinds has created a multi-year buying opportunity for the value conscious.
A&W Royalties Income Fund
A&W Royalties Income Fund (TSX:AW.UN) is a high-yield way to play the legendary burger chain. At writing, shares yield just shy of 6%.
While bountiful, the yield isn’t all too chubby compared with the 10-year note yield, which could make a move above 5% over the coming months. Indeed, 6% is better than 5%, but you’ll bear quite a bit of risk versus the likes of a Guaranteed Investment Certificate (GIC).
In any case, I view the recent 23% pullback off 2021 highs as a great opportunity to buy.
Rogers Communications
Rogers Communications (TSX:RCI.B) is a telecom that’s been outshadowed by its bigger brothers in the scene. With the purchase of Shaw Communications, however, Rogers looks incredibly robust compared to its peers. At this juncture, I’m a big fan of Rogers in the face of profound rate-related and industry headwinds.
The stock trades at a modest 18.5 times trailing price to earnings, with a 3.85% dividend yield. Sure, the yield is nearly half of that of BCE’s right now. Still, I like the growth profile and the ability to weather what could be a vicious hailstorm for the Canadian economy. If a recession is coming (I think it’s unavoidable), Rogers will be a bumpy right, but one worth staying aboard.
