Passive-income investors may wish to consider some higher-yielding investments that have taken a hit on the chin in the first half of the year. Undoubtedly, your TFSA (Tax-Free Savings Account) should be reserved for your best investing ideas. Whether they be stocks, GICs (Guaranteed Investment Certificates), or REITs (real estate investment trusts), you should be ready to bolster your TFSA whenever value falls onto your radar.
Indeed, we’ve heard a lot about the stock market’s impressive rally off last year’s lows. It’s unclear what the future holds, but I don’t think we’ve necessarily due for a return to a bear market. Have valuations gotten out of hand with certain tech stocks? Definitely. But once such names do correct, the rest of the market does not have to fall. When you look at high-yield dividend payers, there are quite a few attractive bargains out there.
Undoubtedly, industry-specific headwinds are always worth careful consideration. However, it’s the growing competition between GIC and bond yields (risk-free investments) with “risky” yields on equities and REITs that I believe has caused substantial pressure on share prices and upward pressure on yields. Of course, there’s also the potential recession on the horizon. But at this juncture, it seems like investors have moved on from looming recession risks.
SmartCentres REIT
SmartCentres REIT (TSX:SRU.UN) is an unloved retail real estate property play that’s seen shares sink since peaking back in 2021. Shares go for $25 and change, alongside a very juicy 7.36% distribution yield. Undoubtedly, retail REIT is out of fashion these days, but I don’t think it will be forever. In the meantime, the REIT has some of the best tenants in the space.
It really doesn’t get better than Walmart, after all, especially as a recession comes knocking! With most retail locations anchored by a Walmart, I view Smart as one of the best contrarian ways to play the high-yield REIT space today.
BCE
BCE (TSX:BCE) stock has been a roller-coaster ride this year, with shares most recently sinking from $65 and change to $57 and change. At writing, shares yield a bountiful 6.6%. That’s not amazing considering the 5% rates on risk-free assets. Still, I think the $53.2 billion telecom behemoth is a great value here for long-term investors who want to construct a resilient TFSA passive-income stream.
The stock trades at 20.8 times trailing price to earnings, which is more or less a fair price to pay for such a steady blue-chip stock. As BCE looks to unlock efficiencies, I think the path of least resistance is higher.
Bottom line
Indeed, the broader basket of high-yield passive-income stocks may stay depressed for a longer period of time. However, they appear to be some of the most intriguing places to look as a value investor today — at least from a long-term vantage point.
High rates won’t last forever. Eventually, rates will be cut rather than raised. And the GIC rates we’ve been spoiled with will come back down. At the same time, higher-yielding, “risky” securities may also see their yields fall under pressure as their share prices swell a bit in response to an environment where yield is just a tad more scarce.
In any case, buying shares of such high-yielding stocks or REITs at these levels can allow investors to “lock in” today’s yields assuming payouts aren’t subject to reductions amid macro pressures.
