Income Investors: Here Is Why You Should Trust REITs in 2019
The Motley Fool
Published Mar 17, 2019 08:09
Updated Mar 17, 2019 08:37
In the summer of 2018, I asked whether REITs were a good option for income investors. At the time I’d recommended some of the top REITs available on the TSX, which came at a nice value in the middle of July. As it stands today, REITs are looking more and more attractive as a source of income in the short-to-medium term.
One reason for this is a softening outlook on rates from the Bank of Canada. The threat of rate tightening had put the squeeze on retail stocks over the past two years. Real estate turbulence in late 2016 and early 2017 spread to REITs. Now that the central bank has largely shifted course, market turbulence and slumping growth has forced down the odds of a rate hike in 2019.
Not only will this alleviate pressure on the broader real estate sector for both residential and commercial, but falling bond yields will drive those seeking income back into the arms of equities. Today we are going to look at two REITs that are worth trusting as we look ahead to 2020.
RioCan REIT (TSX:REI.UN) RioCan is the second-largest real estate investment trust in Canada. Shares had climbed 7.1% in 2019 as of close on March 13. The stock was up 6.6% year over year.
The company released its fourth-quarter and full-year results for 2018 on February 12. RioCan moved to optimize its portfolio in response to market forces over the past several quarters. This involves a reorientation primarily for major markets as well as a focus on expanding its transit-oriented mixed-use portfolio.
The stock last paid out a monthly dividend of $0.12 per share, which represents an attractive 5.6% yield.
H&R REIT (TSX:HR.UN) H&R REIT is the third-largest real estate investment trust in Canada by market capitalization. The stock was up 10.9% in 2019 as of this writing. Shares were up 12.6% from the prior year.
H&R released its fourth-quarter and full-year results for 2018 on February 14. The company has also undergone a strategic shift that involves selling off lower growth retail assets and focusing on its core portfolio. It sold 63 of these U.S.-based assets for $633 million in 2018 and reinvested the proceeds in higher growth U.S. residential assets.
For the full year, funds from operations (FFO) fell 6.1% to $525 million, while same-asset property operating income rose 1.2% to $730.8 million. Rentals from investment operations increased 0.7% from 2017 to $1.17 billion.
Get The App
H&R stock last paid out a monthly dividend of $0.115 per share, which represents a 6% yield.
As far as value is concerned both stocks have improved marginally over the past few weeks. These equities are not discounted by any means, but the high yield makes them a still-suitable target for income investors.
H&R is trading at the high end of its 52-week range and boasts an RSI of 57, outside of overbought territory. RioCan is also trading close to its 52-week high and had an RSI of 65 as of close on March 13. Value investors seeking income will want to exercise patience rather than pull the trigger right now.
Fool contributor Ambrose O'Callaghan has no position in any of the stocks mentioned.
The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool Canada’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Motley Fool Canada 2019
This Article Was First Published on The Motley Fool
Written By: The Motley Fool
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.