Passive-income investors may feel a bit overwhelmed with the growing number of high-yielding options on the Canadian market right now. Undoubtedly, rates are coming down, perhaps faster than originally expected, as inflation melts down, but rates remain on the higher end. Until they retreat further, some of the higher-yielding stocks and REITs (real estate investment trusts) may still boast historically elevated yields.
Undoubtedly, time will tell what happens to their yields as we head into a more uncertain economic environment. If a recession (which seems less likely at this juncture) is up ahead, perhaps the discounts and swollen yields on a wide range of high-quality passive-income plays are warranted. Either way, lower rates could give the economy enough of a jolt, providing a bit of an uplifting effect on the higher-yielding securities as the hunt for yield gets harder as bond yields become less competitive.
In this piece, we’ll have a look at one well-run retail REIT and one retailing stock with an above-average yield that may be worth buying before the Bank of Canada makes its next move or provides more clarity on where we can expect rates over the near to medium term.
CT REIT
Canadian retailer Canadian Tire (TSX:CTC.A) may have a bountiful yield (close to 4.5% at the time of writing) and more upside should discretionary spending kick things up a notch. However, if you’re looking for more yield and less in the way of economic sensitivity, perhaps CT REIT (TSX:CRT.UN) is a better play. The REIT is on the mend, now up around 12% in the past three months in anticipation of lower interest rates.
Beyond lower rates, though, CT REIT receives a vast majority of its rental income from Canadian Tire. The retailer itself has a strong balance sheet and enough resilience to ride out nasty hailstorms in the economy. In any case, CRT.UN shares boast a yield that’s more bountiful (6.33% at writing) to go with a security that’s somewhat less volatile.
However, you’ll probably forego upside in an up economy by opting for CRT.UN shares over CTC.A; I do think the trade-off is worthwhile if you’re looking for more passive income and slight defensive traits.
North West Company
North West Company (TSX:NWC) is a $2.2 billion retailer that few Canadians may think of when they hear of grocery stores. The firm is definitely more of a mid-cap gem than some of the grocers most Canadians are familiar with. Of late, NWC stock has been experiencing a breakout moment, rising over 46% in the past year.
This breakout has been years in the making, and I think it could have legs. Despite the hot run, NWC stock is still going for a value multiple at around 16.35 times trailing price to earnings (P/E), which is way too cheap for such a niche retailing play with unique advantages in its markets of interest. The 3.48% dividend yield is well-covered and subject to consistent growth over time.
The latest round of earnings was pretty solid, as too were the cash flows. As one of the more resilient retailing plays (serving remote communities is often too expensive to draw in mainstream retail competitors), NWC stock is definitely worth considering if you seek to take playing defence to the next level!
