The Fed’s Dovish Turn: 2 REITs That Could Soar Into the 2024 Rate Cuts

Killam Apartment REIT (TSX:KMP.UN) and another top property play that could bounce back in 2024.

| More on:

The U.S. Federal Reserve seems to be hinting at a trio of rate cuts for the new year. As such cuts become (partially) priced into broader markets, there’s a real risk that investors may be left disappointed if anything less than three cuts are in the cards for 2024.

Undoubtedly, it’s really hard to gauge what the Fed (or even the Bank of Canada) will do next. It’s tough to know what they’re thinking as the economic data comes slowly trickling in. Either way, the market seems to have put inflation (mostly) behind it, with more emphasis on a potential return to lower rates.

As the economy wobbles around, the Bank of Canada may be inclined to follow in the footsteps of the Fed. For now, the Bank of Canada seems just a tad further away from committing to a cut. As rates pause here in Canada while they begin to backtrack in the States, the Canadian dollar may finally gain a bit of ground against the U.S. dollar.

In any case, investors should focus less on Fed rate cuts and more on the longer-term trajectory. Are rates destined to be lower from here? Probably. But it’s the pace of cuts that could dictate how markets react moving forward. Even if rates are on a slow descent, there are plenty of rate-sensitive securities that could be in a spot to march higher.

Take the Real Estate Investment Trusts (REITs) as one asset class that welcomes a peak in rates with open arms.

Without further ado, let’s check out two impressive higher-yielding REITs that I think could have a good year in 2024 as rates finally cool and the Bank of Canada looks to take a dovish turn of its own (perhaps a Canadian recession could do it!).

Killam Apartment REIT

Up first, we have Killam Apartment REIT (TSX:KMP.UN), a growth-focused residential property play with a good chunk of exposure in Atlantic Canada. Indeed, the Atlantic coast may be overlooked as the Vancouver and Toronto rental markets really heat up.

Though Killam isn’t an Atlantic property pure-play, I do think shares are looking quite cheap relative to the high-quality income-producing assets you’re getting. Shares go for around $17 and change per share at the time of writing.

Since bottoming back in October, shares are up around 16%. The yield isn’t all too rich at 3.91%, but as a growth-focused REIT, I do view the distribution as bountiful for young investors looking to find a good balance between income and long-term appreciation. Killam’s one of my top value REIT picks for December 2023.

SmartCentres REIT

SmartCentres REIT (TSX:SRU.UN) is hands down my favourite retail REIT, and perhaps my top yield heavyweight (shares yield just over 7.5% at writing) in the space.

Undoubtedly, the AFFO payout ratio may have crept higher in recent years. But it’s still not high enough to be worried about the safety of the distribution. In fact, I’d argue the AFFO payout ratio could move a lot lower from here as rates cool and the economy gets a chance to recover from the past few years of subtle headwinds.

In any case, I’m a fan of the REIT’s tenant base (many are some of the more resilient brick-and-mortar retailers out there) and their ability to keep making rent in a mild recession year. And if that recession never materializes? Look for SRU.UN to correct to the upside, as it attempts to climb back above the $30 level.

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 Joey Frenette has positions in SmartCentres Real Estate Investment Trust. The Motley Fool has positions in and recommends Killam Apartment REIT. The Motley Fool recommends SmartCentres Real Estate Investment Trust. The Motley Fool has a disclosure policy.

More on Investing

A microchip in a circuit board powers artificial intelligence.
Tech Stocks

This Tech Stock Could Dominate the Future of AI and Cybersecurity in Canada

OpenText may come to dominate the cybersecurity arena in Canada.

Read more »

dividends can compound over time
Energy Stocks

1 Magnificent Canadian Energy Stock Due for a Major Rebound

This energy stock isn't going to surge overnight, but it could provide decades of stable income.

Read more »

a man relaxes with his feet on a pile of books
Bank Stocks

1 Canadian Bank Stock That Smart Money Is Buying

A surging Big Bank stock is a smart buy for value and income investors in the second half of 2025.

Read more »

money goes up and down in balance
Dividend Stocks

The Ultimate Value Stock to Buy With $500 Right Now

This TSX stock has a well-established business, solid earnings growth potential, and a valuation that leaves room for significant upside.

Read more »

concept of real estate evaluation
Bank Stocks

1 Magnificent Canadian Financial Stock Down 15 Percent to Buy and Hold for Life

As traditional bank stocks surge higher, this non-prime lender is still catching up. And that’s exactly what makes it interesting…

Read more »

todder holds a gold bar
Metals and Mining Stocks

1 Gold Mining Stock That’s My Inflation Protection Play

Agnico Eagle Mines stock has generated inflation-beating returns over the past decade, and the gold stock retains strong growth momentum

Read more »

Piggy bank with word TFSA for tax-free savings accounts.
Dividend Stocks

1 TFSA-Worthy Dividend Stock to Buy and Hold for Life

Bank of Montreal (TSX:BMO) stock seems worth picking up for your TFSA for the long-term dividend growth and decent valuation.

Read more »

investor looks at volatility chart
Dividend Stocks

Why This 4.6% Dividend Stock Could Be Your Best Defence Against Volatility

We're all looking for ways to keep our investments safe and stable, and this one is a great option.

Read more »