The REITs (real estate investment trust) scene is starting to heat up again after a few years of slumping on the back of higher interest rates. Undoubtedly, expectations of lower rates in the near future are encouraging for the REIT space. That said, investors shouldn’t conclude that the inflation beast is dead and rates are on their way back to historic lows. Indeed, rate cuts are still in the cards. However, at this juncture, it’s about how many rate cuts we’ll see this year and how fast they’ll come.
As rate cuts gradually trickle in, there will be a bit of relief across various stocks and REITs. Still, even if the rate cuts happen according to schedule, don’t expect any sort of sudden upward surge. At the end of the day, REITs and stocks could be incredibly volatile. And if there are too many rate cuts priced in for 2024, then even REITs could stand to take a tumble in 2024.
Image source: Getty Images
Opportunities within the REIT space for 2024
Indeed, recent gains in the REIT space may have to be consolidated for a year or even more. If you’re a long-term investor seeking passive income, though, the timing of rate cuts should be of little concern to you. Indeed, you should always have a bit of cash sitting on the sidelines so you can buy on sudden dips.
Right now, though, it makes sense to start a partial position if you’re on the hunt for a sustainable source of passive income. The REIT space, I believe, is still undervalued relative to most other asset classes out there, even if more than a trio of rate cuts are priced in for the new year.
Remember, unlike the no-yield tech stocks that are surging higher on the back of generative artificial intelligence potential, the yield heavyweights (REITs included) stand to pay you for your patience over time. In this piece, we’ll look at a top REIT play atop my buy radar going into February 2024.
RioCan REIT: A one-stop-shop for passive-income investors
Shares of RioCan REIT (TSX: REI.UN) have been on the mend in recent months, now up over 14% from its lows hit back in October of 2023. Indeed, the 5.72% yield is quite attractive, as too is the diversified portfolio of properties, which may very well be underestimated by an overly gloomy Mr. Market.
In any case, the REIT looks incredibly cheap going into February. And though shares will be paying very close attention to the Bank of Canada (and the U.S. Federal Reserve) regarding their views on where rates are headed next in response to economic data, I still think long-term income investors ought to think about nibbling their way in before more than just a trio of rate cuts begin to be priced in. If you’re a fan of diversified REITs at reasonable prices, look no further than the name.
The Foolish bottom line for income investors
REITs may be untimely, but if you’ve got a five-year horizon, I view them as a source of superior total returns relative to the risks taken. At $18 and change, RioCan REIT is an intriguing option to consider putting more homework into!
