Investors should take extra caution when thinking about extending the average yield of their portfolio. Of course, that’s not to say you shouldn’t consider adding some spice to a portfolio to average up that yield, especially if there’s an opportunity to pounce on a name that’s been overly punished on the dip. When it comes to high-income plays with yields north of the 8% mark, there aren’t a ton of options on the TSX Index.
Of course, there’s plenty of specialty income ETFs out there that promise yields north of 5.7%. Most notably, the covered call ETFs and even leveraged covered call ETFs have made it possible to get a real passive income shot in the arm.
As always, there are trade-offs (often higher fees and other risks) when it comes to getting that yield higher. In this piece, we’ll look at a REIT (Real Estate Investment Trust) that has a fairly sizeable (currently 8.7%) yield with distributions that are paid out monthly.
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CT REIT
Enter shares of CT REIT (TSX: CRT.UN), a fairly durable retail and industrial REIT that has the iconic retailer Canadian Tire (TSX: CTC.A) as its top tenant. In prior pieces, I praised CT REIT as a more income-rich play to ride on the back of one of the timeless retail plays without having to worry about consumer sentiment shifts. Of course, when it comes to the REITs, shifts in interest rates are the thing to worry about. Of late, Canadian Tire has been absolutely thriving, with shares closing in on new highs, likely thanks in part to the “buy Canadian” mindset.
What’s most surprising about shares of CT REIT (or perhaps not) is the fact that shares have been so relatively steady in recent months as the REIT space moved lower. Sure, CT REIT shares corrected around 10%, but more recently, the shares have been coming back quickly. In my view, this signals an upside correction from a mostly panic-driven move lower. The shares are now up more than 4% in the past month, putting CT REIT around 6% from its 52-week highs.
Volatility ahead
As the Bank of Canada takes to the stage, much of the REIT universe and perhaps the broader TSX Index is going to be volatile. In any case, I continue to view CT REIT as one of the steadiest ships in the retail REIT waters.
The 5.7% yield might not be the most generous, but if you seek relative stability and would rather have one big, highly liquid tenant, like Canadian Tire, rather than a mix of good (and not-so-good) tenants that might experience considerable pressure during a period of high rates and a recession, perhaps CT REIT is the pick to go with.
As inflation cools and the jobs situation looks to take a bit of hawkishness away from the Bank of Canada, I must say I like where the REITs could go as they finish the year after running into quite the colossal road bump.
The bottom line
Sure, bonds might look more competitive these days, but with sky-high occupancy rates driven by Canadian Tire and its family of stores (including Sport Chek and Mark’s), CT REIT looks like a much better deal. It’s got the predictability, the iconic retail anchor, a history of persevering through turbulent times, and the ability to grow alongside its very Canadian top tenant.
