Passive-income investors shouldn’t wait to get started, given the many intriguing dividend plays scattered throughout the Canadian stock market. Indeed, rates could be headed lower from here. And though the market seems to be anticipating a few cuts (perhaps as many as three) from the Bank of Canada for 2024, there’s a good chance that expectations may be a tad too ahead of themselves. And if that is the case, investors may have a chance to capitalize on any near-term pullbacks through the year.
Yields are still on the higher end, especially when it comes to REITs (real estate investment trusts). That said, there’s been quite a bit of relief gains in the books to close out 2023. And though I believe REIT share prices are likely to end this year higher, seekers of passive income should not expect a smooth upward ride from here. Depending on how many rate cuts the Bank of Canada actually deals out, REITs could continue to be volatile in 2024.
However, over the next three to five years, I view REITs as quite undervalued, making them terrific buys for income investors who want to “lock in” today’s high yields before shares appreciate enough to drag yields toward historical norms.
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How should passive-income investors play 2024 when it comes to the yield heavyweights like REITs?
Though I’m not against being a net buyer of REIT shares today, I would be ready to pounce on any sudden dips that could strike over the coming quarters.
Indeed, stocks (and many REITs) have been on a run. And corrections are to be expected, even as forward-looking conditions (think the rate trajectory) improve. Remember, REIT and stock market corrections are only healthy. And if you can keep your cool when they hit, you can get more yield for a lower price!
In any case, here are two REITs I’d watch (and perhaps nibble on) to play a multi-year descent in interest rates.
SmartCentres REIT
I’m a big fan of SmartCentres REIT (TSX:SRU.UN), and it’s not a mystery as to why. It’s a robust retail REIT that has one of the biggest crowd-driving retailers housed at most of its SmartCentres locations: Walmart. When times get tough, people will still be shopping at the local Walmart to save a couple of bucks relative to rivals.
Here in Canada, Walmart continues to be a great place to get great prices on groceries, necessities, and a wide range of goods. In that regard, Walmart’s store traffic generation will also benefit SmartCentres’s other tenants. Whenever you have a main attraction (Walmart) bringing people in, other firms (Smart’s non-Walmart tenants) still stand to win.
At just shy of $25 per share, with a 7.43% yield, I remain a raging bull on SRU.UN shares. The 16.4% run-off October 2023 lows may very well be just the start.
CT REIT
CT REIT (TSX:CRT.UN) is another very high-quality retail REIT that doesn’t get much respect. Yes, retail REITs may be a less-loved area of real estate. However, CT REIT stands out as having one of the most robust 6.13%-yield distributions out there.
Even if a recession hits, I view CT REIT’s payout as incredibly safe. As rates contract and the economy gets back to full speed, however, look for CRT.UN shares to make a run for new highs not seen since 2022. All considered, I view CT REIT as a great passive-income pick for investors, new and old. Should a pullback be in the cards, passive-income investors may wish to consider punching their ticket.
