In this environment, you can land some pretty solid high-yielders (think yields at or north of 6%) without running face-first into an imminent dividend or distribution reduction. Indeed, chasing yield is often a precarious thing to do, especially for retirees who want more passive income to fund their retirement expenses. Even though interest rates have come down quite a bit, they’re still a tad high.
And if the Bank of Canada suddenly stops cutting rates (it’s a possibility if tit-for-tat tariffs and other trade risks are in the near future), perhaps the high-yielding REITs (real estate investment trusts) and their high yields could prove smart bets today.
As always, though, I’d never encourage investors to make moves based on where they expect rates will be in the future. Further, unpredictable things can happen (maybe Trump will reach a new trade deal, and tariffs won’t have a chance to happen), making it ultra-challenging to profit from macroeconomic events.
In any case, here are three great REIT plays that investors may wish to check out if they seek yields over 6% and a good shot at longer-term appreciation.
SmartCentres REIT
First up, we have an underrated retail REIT in SmartCentres REIT (TSX:SRU.UN), which has a yield of 7.19%. Indeed, the distribution may be a lofty commitment, but it’s one that I believe is more sustainable than it looks.
As one of the higher-yielding REITs that kept paying distributions during lockdowns, I’d argue that Smart’s payout is safer than the adjusted funds from operations (AFFO) payout ratio would suggest. If its distribution can make it through the worst of a pandemic, I’d argue it can also fare well through a mild economic downturn or period of stagnation. Indeed, it’s easy to forget just how resilient the REIT and its distribution were through one of the worst market plunges in recent memory!
Further, SmartCentres stands out as a REIT that could get back on the growth track once rates finally do fall significantly.
Residential real estate is just one area that could help Smart enhance its growth profile. Lower borrowing costs may be the boost the REIT needs to sustain a rally toward prior highs. Either way, it’s only smart to consider the name if you seek a secure but still hefty yield.
H&R REIT
H&R REIT (TSX:HR.UN) shares are yielding just over 6% again after the latest slump off 52-week highs of $11 and change. Indeed, it’s been a painful 14% correction in the name as investors re-evaluate where interest rates will be headed next. Despite the magnitude of the decline, I still view H&R as one of the cheapest ways to land a yield of around 6%.
Unlike with SmartCentres, H&R REIT reduced its distribution during the pandemic. Despite this, the distribution has still been bountiful. And while it has been tough to sustain momentum after imploding back in 2020, I still think the diversified REIT, which has been offloading assets in recent quarters, stands out as one of the cheapest high-income offerings in the entire REIT scene.
Sure, pressures facing the REIT may not subside anytime soon. But if you’re looking for passive income and deep value in a single name, I think it’s tough to overlook HR.UN while it’s in the single digits again.
