Some of the best passive-income stocks have been great to own not just for a few years but decades or perhaps even a lifetime. With stable and oftentimes growing payouts, it may be best to consider such names as permanent holdings in a portfolio. Indeed, if you’re going to get a raise every single year from a steady dividend growth gem, you probably wouldn’t want to hit the sell button, even when the market tides get just a little bit rougher.
With the Bank of Canada (BoC) likely poised to trim interest rates steadily over the coming 18 months, I’d argue that some of the best dividend growers and high-yielder heavyweights will be able to rally. And every major upward move means that the swollen dividend yield will get just a bit smaller. Indeed, a high-rate environment calls for higher dividend yields.
Bank of Canada: More rate cuts likely coming going into 2025
So, if you believe that the Bank of Canada will cut aggressively through 2025, perhaps there are no better opportunities in this market than the high-yielding income plays that are down considerably from their all-time highs.
As we move from a high-rate climate to a slightly lower (or perhaps markedly lower) one, demand for swollen dividend yields could rise quickly. Early 2020-era lows in rates probably aren’t right around the corner. However, I think that rates stand to settle in a range that’s a bit lower than where the market is currently expected, especially if inflation implodes at a faster rate in the second half of 2024.
In any case, here’s one passive-income stock that probably won’t be as cheap or as yield-rich a year or two from now after a couple of Bank of Canada rate cuts have had a chance to kick in.
SmartCentres REIT
SmartCentres REIT (TSX:SRU.UN) shares seem to be in a sweet spot right now. There’s an impressive amount of newfound momentum (shares up 13% from June lows), and the yield remains quite high at 7.62%. Undoubtedly, the yield is no longer close to 9%, but for investors who are keen on locking in an above-average yield before higher rates knock down yields on a wide range of securities, I view SRU.UN is worth buying on the way up.
The well-run retail real estate investment trust (REIT) has incredibly high occupancy rates, currently sitting around 98.5%, thanks in part to high-quality tenants that are capable of driving foot traffic in even turbulent and inflationary environments. With an intriguing long-term plan to diversify into new property types (think residential), the REIT stands to get even better with age.
Of course, the biggest medium-term tailwind has to be interest rate cuts. Smart has a large (but still manageable) amount of debt on the balance sheet. A couple of rate cuts could do wonders for the REIT as it looks to catch a break after years of rate-related pain.
The Foolish bottom line
In short, lower rates are the medium-term driver of shares, whereas Smart’s growth projects are a longer-term driver. With a juicy but well-covered payout and a means to grow it over the long run, I’d argue SRU.UN stands out as one of the best low-cost, passive-income plays on the TSX right now.
