Up 16% in a Year and Paying 5.6%: A Canadian Income Play the Market Forgot

Passive income investors should probably be paying just a little more attention to some of the Canadian REITs (Real Estate Investment Trusts) right about now, especially as yields stay in a rather attractive spot. Of course, as interest rates go down and yields become a bit more compressed (on average), it can literally pay dividends to consider asset classes that may have been forgotten in recent years.

Of course, the REIT space felt the weight of higher interest rates a few years ago. But, more recently, the tides have turned back in the REIT’s favour. And with more rate cuts potentially on the way, perhaps the yields in your favourite REITs might be headed lower as shares slowly but steadily begin climbing back.

Time to check out the REIT scene for lower-risk yields

As far as alternative asset classes go, the REIT space is one of my favourite places to reduce beta while getting paid a fat distribution and, now, landing decent capital gains. Just because there’s some newfound momentum in REITs, though, doesn’t mean the opportunity to back up the truck has come and gone. I think there’s still a bit of a valuation gap between some of the best-in-breed REITs and some of the heated stocks on the TSX Index.

Arguably, some of the hard-hit REITs are the cheapest they’ve looked relative to stocks in quite a while. Of course, some corners of real estate are under more pressure than others. Very few want to be in office REITs nowadays. The same could be said for various retail REITs. And while residential and industrial REITs are more tempting, I do think that the yields aren’t as hefty as they could be.

CT REIT: A passive income play that’s coming back

Either way, I think CT REIT (TSX:CRT.UN) is one of the steadiest retail and warehouse REITs on the market right now. It’s the big landlord of the great Canadian Tire (TSX:CTC.A), a retailer that’s also having a moment. With the Bank of Canada holding rates steady and the door open to perhaps another cut or two, I do think the REIT waters have steadied. And given this, as well as the still-attractive yield (5.6% at writing), it should be no surprise as to why the long-time laggard has finally awakened.

Though shares still have over 6% to jump before testing a breakout to new all-time highs, I do think that there’s a realistic possibility such a breakout could happen this year, especially if the right cards fall into place (let’s say more rate cuts and growing scarcity for lower-risk yields).

Now, the main attraction to CT REIT has to be its incredibly high and incredibly stable occupancy. It’s housing the great Canadian Tire, which isn’t going anywhere. It’s helped CT REIT achieve an occupancy rate that’s just shy of 100%. It doesn’t really get much better than that.

What’s more, the REIT has room to expand and grow alongside Canadian Tire. It’s not only retail space, but distribution centres, which might be key to helping Canadian Tire achieve next-level efficiencies.

With minimal debt and highly predictable cash flows, CT REIT is a steady ship in the REIT scene. And I think it’s worth picking up on recent strength. It’s a defensive grower with a solid payout and a steady, even boring, long-term expansion plan. So, if you want good sleep and a non-AI play, here’s how you can get it!

The post Up 16% in a Year and Paying 5.6%: A Canadian Income Play the Market Forgot appeared first on The Motley Fool Canada.

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Fool contributor Joey Frenette has positions in CT Real Estate Investment Trust. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.