For passive income investors seeking a bit of extra yield, now seems like a good time to put new money to work, with yields still somewhat swollen in the REIT (real estate investment trust) and banking scenes. Undoubtedly, yield maximization can be a pretty dangerous game if you’re not putting in the homework beforehand and blindly buying the dip in a name that may be facing harsh headwinds or a slate of idiosyncratic issues that could cause continued underperformance for a longer period of time.
In this piece, we’ll look at one hard-hit REIT and one Canadian bank stock that look cheap for investors seeking yields north of the 5% mark in addition to potential upside over the next two to three years. As always, do your own homework before you even think about backing up the truck on any one of these names.
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CT REIT
CT REIT (TSX: CRT.UN) has been one of those stable, high-quality REITs that have been dragged down alongside the rest of the pack in recent months. Undoubtedly, the Bank of Canada could slow its pace of rate cuts in 2025. In any case, I think the Bank of Canada will cut more times in 2025 than the U.S. Federal Reserve. With most of the negativity already likely priced into the REIT scene, the waters may be calm enough to get back in for investors seeking extra yield after the latest pullback.
So, why CT REIT, the firm that houses one of the most iconic retailers in the country? The 6.6% yield is incredibly bountiful and well-covered by funds from operations. Additionally, with a heavy reliance on one highly liquid and resilient retailing tenant (Canadian Tire), I view CT REIT as having a safer and sounder distribution than many of its peers in the retail REIT scene — a slice of the real estate space that isn’t exactly the most attractive at a time like this, when many Canadian consumers are holding off from various discretionary purchases.
Either way, I view CT REIT as a solid option while it’s off 13% from its 52-week highs. It may not be the most diversified retail REIT out there, but it’s definitely one with a rock-solid distribution that I view as more than dependable, regardless of what the Canadian economy is in for in 2025. Finally, with a beta of around one, shares are about as volatile as the broader TSX Index.
Scotiabank
Scotiabank (TSX: BNS) is a Canadian bank stock that has a fairly large dividend yield (5.31% at the time of writing) after sliding nearly 7% from 52-week highs. Undoubtedly, if you chased the year-end rally in shares of BNS, you took a bit of a hit. The good news is the latest plunge seems more like a buying opportunity than a red flag to take profits and run, especially as Scotiabank looks to take steps to power its comeback.
So, if you’re a fan of getting the best of domestic and international banking growth, I’d look no further than the name going into February. Also, the bank stands to make a splash in the U.S. banking scene with the latest US$2.8 billion stake in a U.S. bank closing a few weeks ago. I view it as a potential high-growth wild card many investors may overlook. Of course, the U.S. expedition stands out as a longer-term driver, in my view.
