With the Federal Reserve taking a dovish tilt on Wednesday, helping spark an impressive afternoon rally, many investors may be wondering if this is the early stages of a potentially long-lived bull market. Indeed, stocks have been on an impressive relief run for most of the year. Though the market is mega-cap and tech-led, things are starting to broaden out. With the REIT (real estate investment trusts) starting to climb back on the hopes of lower rates in the new year, I’d look to buy them on the way up before their swollen yields (like interest rates) begin to fall back down to Earth.
Indeed, it was quite jarring to see BMO Equal Weight REITs Index ETF (TSX:ZRE) skyrocketing by around 5.5% on Wednesday. REITs, from across the board, really had a chance to heat up. And I think 2024 could see more relief gains from the sector, which has been heavily battered for far too long now.
Apart from the yield-heavy REITs, I view the financials and utilities as pretty rich with value, given the new trajectory of rates. Indeed, when rates are high, dividend yields need to be more competitive. Why take the risk with a dividend when you can just settle for the risk-free rate on a Guaranteed Investment Certificate (GIC) in Canada or a Certificate of Deposit (CD) if you live in the United States?
In this piece, we’ll consider two compelling yield-heavy plays that I’d be willing to buy with an extra $6,500. So, if you haven’t yet put your last TFSA (Tax-Free Savings Account) contribution to work quite yet, the following plays may be worth watching, as we head into year’s end and the start of a new year where rate cuts, as opposed to hikes, are the atop the financial headlines!
BMO Equal Weight REITs Index ETF
BMO Equal Weight REITs Index ETF seems like a great place to start if you’re looking to bet on the broader basket of Canadian REITs. Shares of the exchange-traded fund (ETF) rocketed higher on Wednesday, as investors piled back into the battered REIT trade. With an impressive 5.23% distribution yield and exposure to a good number of REITs, many of which still look quite cheap, the ZRE stands out as a one-stop shop for investors looking to play lower rates from here.
With a 0.61% management expense ratio (MER), the ZRE ETF isn’t exactly a low-cost option. Still, I think most investors would save a great deal by owning the ETF over purchasing the individual holdings within the basket. Either way, I view the recent run in the ZRE as sustainable and perhaps the start of a move toward higher levels. All considered, REITs are starting to look attractive again on Bay Street going into the new year.
BCE
BCE (TSX:BCE) is another dividend heavyweight that I think could do well in 2024, as rates retreat and the company begins to feel more of the benefits of past expense cuts. Of course, Bell Media could remain under pressure, but the wireless business, I believe, is slated for impressive growth from here.
And the 7.1% dividend yield may be compressed as a result of appreciation should rate cuts come in a tad quicker than expected. Either way, I’m a big fan of the telecom titan while it’s going for less than 23 times trailing price to earnings.
