If you’re on the hunt for yield, it might be a good time to revisit some of the REITs (Real Estate Investment Trusts) that can offer far more yield than your average TSX stock. Indeed, the REIT space seems to be one of the last best higher-yielding corners of the market that don’t require you to pay too hefty a premium for the price of admission. Though not a dividend stock (REITs actually pay distributions), SmartCentres REIT (TSX: SRU.UN) is one of those yield boosters that I keep coming back to, especially when the market’s yield is on the lower end of the historical range.
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SmartCentres REIT
Of course, even some of the top REITs have dealt with a bit of yield compression in recent years. While the long-term trajectory for REITs could still be positive as the Bank of Canada considers its next move (my guess is it’ll be a cut rather than a hike), there has been a bit of summertime turbulence, which could provide new income investors a chance to get more yield for a lower price.
With shares of SRU.UN in a correction, down by just over 12% from its 52-week high, I do think there’s an opportunity to snag a safe, steady near-7% yielder. Of course, SmartCentres is a retail REIT, and there’s still hesitation, especially when you consider the potential for the consumer to really feel the hit as inflationary pressures get even worse.
Indeed, with higher oil prices potentially acting as a bit of a shock to the economy, the threat of tariffs and more, I do think that investors are smart to reassess the risks posed by the likes of a retail REIT. While a recession isn’t good for any firm or REIT, I do think that SmartCentres is one of the more resilient names out there, with a payout that’s on fairly steady ground.
Whether it’s the Walmart (NASDAQ: WMT) anchor or the many other steady tenants that can make rent, even when the economy slips into a recession or worse, SmartCentres REIT certainly does stand out as a retail REIT that’s not like most other retail REITs out there, many of which may deserve to trade at a considerable discount.
Of course, there’s far more to like about shares of SmartCentres other than the Walmart anchor at more than half of its locations. With a strong occupancy rate (consistently north of the 98% mark) and a very promising pipeline of projects, which includes prime real estate for residential and industrial (think self-storage units), it feels like distribution reductions are off the table, even in the face of headwinds.
The bottom line
Shares of SRU.UN won’t be the biggest of gainers, but, at the very least, the well-covered distribution is something that Canadian passive income investors can rely upon in this climate. Strong tenant cash flows, a decent growth pipeline, the Bank of Canada on pause, and the continued robustness of its top anchor in Walmart are just some of the reasons why SmartCentres REIT might be the ultimate yield booster in a climate where yields are feeling just a bit compressed compared to years past.
