What can $500 buy you? It can buy you a camera, gaming chair, or smart goggles. It is often the discretionary spending that puts us off from investing and making more money. If you buy any of the above products not because you need it but because you want it, you are depreciating the value of your money. These assets depreciate at a faster rate, given the speed at which technology is evolving.
Many people even shifted to renting instead of buying such products. While renting proves to be expensive in the long term, it is a cheaper way for temporary usage. If you want to buy a camera worth $300 for one occasion, you are better off renting it. However, if you need the product regularly, buying is a better alternative. When buying, consider the returns you could get and the opportunity cost. The savings from such buying can be invested in stocks.
Two of the best stocks to buy in Canada
Every market has its strengths and weaknesses. Investing in one’s strengths can help you get better returns. The Canadian market’s strengths include its real estate. Toronto is one of the most expensive cities in the world in terms of real estate. Its other strength is its expensive broadband plans. Here are two of the best stocks to buy in Canada’s strength in 2024.
RioCan REIT
Speaking of real estate, why are property prices high? Because it is a prime location, it has a high population density and is a neighbourhood of high-income earners. Among property types, commercial, especially retail stores, generate higher rent compared to residential and industrial.
RioCan REIT (TSX: REI.UN) has a portfolio of 187 properties, of which 84% are retail and 10% commercial. It earns 94% of its rent from six major cities in Canada. Even within cities, its dominant position is in Toronto, Canada’s most expensive city. The real estate investment trust’s (REIT’s) strategy is to own property in areas with the most compelling demographic. Its growth depends on a high number of immigrants who prefer to stay in major cities.
In the second quarter, the REIT enjoyed a high occupancy ratio of 97.5%, and its unit traded at 72% of its book value of $25.02. It has a distribution payout ratio of 61.5% of funds from operations, which is a comfortable ratio.
While the REIT has a strong portfolio, one risk is its high debt of $7.14 billion on its balance sheet. Hence, its interest expense runs up to $72 million. However, it has ample liquidity ($1.5 billion) to service its debt. You could buy this stock and enjoy an annual yield of 6.14%, paid in 12 monthly installments.
Telus stock
Telus (TSX: T) stock is trading closer to its pandemic low as high interest rates have increased its debt beyond its guided range. The company’s net debt is 3.8 times its EBITDA (earnings before interest, taxes, depreciation, and amortization), above the target range of 2.2 to 2.7 times. High debt forced the company to maintain a higher liquidity of over $4.2 billion from the minimum of $1 billion. This means the $4.2 billion amount cannot be reinvested for growth, increasing the opportunity cost. Higher interest expense has strained its free cash flow and increased its dividend payout ratio to 91%, above the target range of 60% to 75%.
All these factors have pulled down the stock price by 25% from its average trading price of around $28. However, it is time for the turnaround. The liquidity can help the company meet its debt obligations and restructure its debt to lower rates as the Bank of Canada reduces interest rates. It has already cut the rate by 50 basis points in the last three months, and more rate cuts are likely.
Now is a good time to lock in an annual dividend yield of over 7% while the Telus stock trades at a discount. An improvement in fundamentals could drive the stock price to its average trading price of $28, representing a 33% upside.
