The last decade saw Canada’s real estate industry grow by leaps and bounds. The most significant run-up in real estate values, particularly in major Canadian cities, have seen the segment go up drastically. With ridiculously expensive housing in the most sought after real estate markets, Canada’s housing has effectively become a bubble that is ripe to burst at any time.
Canadian investors seeking exposure to the happening real estate market are at a critical point right now. As prices keep rising, the demand for housing will largely remain the same.
And let’s not forget the crippling consumer debt and the risk of a looming recession. In case the housing market collapses, what will happen to Canadian investors with REIT stocks?
If you are an investor with interest in the real estate market through REITs, you can benefit from the real estate industry and enjoy insulation from a housing crash. It would help if you were careful about the stocks you invest in to protect yourself.
To this end, there is no better stock to discuss than Choice Properties Real Estate Investment Trust (TSX:CHP.UN).
Housing market risk-averse REIT
REITs effectively operate in the real estate market, but not all of them run the same risks. A housing market crash means residential real estate suffers. REITs with portfolios composed primarily of residential properties are definitely at a high risk of collapsing in the event of a housing crash.
Choice Properties operates as one of the top retail REITs in Canada. I should point out that retail-centric REITs generally carry increased risks.
Retail REITs with malls and other properties at risk of suffering from declining consumer spending carry the most risk. With CHP, the risk is not a concern given the types of properties it owns and its client base.
Most of Choice Properties tenants are large grocery stores and banks – the kind of businesses that are here to stay. The REIT’s portfolio consists of properties located in critical areas with increasing populations. With a stable occupancy rate of almost 98%, there is no need for more evidence about the strength of Choice Properties REIT’s portfolio.
Juicy dividends and strong fundamentals
In its most recent quarter, Choice Properties reported an annual payout ratio of 74% on its dividend with a 5.34% yield today. It is one of the most attractive dividend yields in the industry right now, weighing the risk and growth potential in the future.
The company continues to develop properties in strategic areas. The result will be more significant value for its tenants, more flexibility for the REIT, and increasing stability with continued growth.
One of Choice Properties REIT’s main clients is Loblaw. When it comes to a recession, consumer staple companies like Loblaw are the most likely to succeed during challenging times. Choice Properties can rely on the company to remain reliable tenants for the long term.
Foolish takeaway
I think Choice Properties is the ideal stock for a shareholder who wants exposure to the real estate industry and to protect themselves from the effects of a housing market crash. The REIT can also offer protection for your investment portfolio in case of an overall market downturn due to a reliable customer base.
The stock is trading for $13.85 per share at writing, up by almost 20% in the past 12 months. Investors should look closely at CHP.UN because it could be gratifying in the future.
