If I had a crystal ball, I would probably be using it to predict more fun things than the stock market. Also, I’d be a gypsy, and nobody likes them. Not even gypsies like other gypsies.
Now that we’ve concluded that I don’t definitively know that the market is going down, I think we’re in the beginning of that correction all the kids have been talking about. Bear markets don’t happen right away, but I think craziness from Russia/Ukraine and weakness out of China will start to bring the market down.
Keep in mind though that there is at least a 96% chance I’ll be wrong. That is the nature of calling market tops.
So what should you do if you think the market is going down? A smart move would be to get into a sector like REITs, even though Canada’s real estate bubble is large and still in charge. Most of these REITs are sitting on assets that are a decade or two old, and can actually deliver decent cash flow. Besides, the commercial REIT space is filled with smarter buyers than the Toronto condo market. They actually buy properties that cash flow immediately.
I’m not sure if interest rates will go up, but even if they do I don’t think a spike in rates is going to happen, which is probably the biggest risk to REITs. Even if they go up a little and the average REIT sells off 10-15%, you’ll be somewhat insulated by the succulent dividends.
Anyway, enough teasing. You want actual REITs to buy, and you possibly want to murder this DAMN FRUIT FLY ANNOYING ME I SWEAR TO GOD I’LL TORCH THIS PLACE.
I mean, let’s look at two of my favorites in the space.
The majority of Cominar REIT’s (TSX:CUF.UN) assets are in Quebec, setting me up for some terrible poutine jokes.
A little over a year ago, the whole REIT market sold off some 20% because everyone thought interest rates were going up. That turned out to not happen, so most of the sector have largely made back the loss. Except for Cominar.
The REIT has a little of everything, except apartments. It’s got office towers, retail, industrial, and so on. Operations are mostly located in Quebec, which has weak overall economic numbers, a possible reason for why it hasn’t recovered with the others. But when you look at the numbers, they ain’t bad.
Every metric was up during the company’s last quarterly report. Funds from operations rose something like 10%, thanks to acquisitions in the Greater Toronto Area. It even went as far as hiking the dividend, from 12 cents per share a month to 12.25. For a REIT, a 2% dividend hike isn’t so bad. The payout ratio is currently under 90%.
And yet, shares are giving you a 7.66% yield. If you took them in the form of a dividend reinvestment plan (which gives investors a 5% reward for taking shares instead of cash), you’d be getting an 8% yield. Not a bad place to hide if you ask me. It sure beats the closet. NOT WHAT I MEANT.
Dream Office REIT
I understand why Cominar hasn’t recovered, but I honestly have no idea why Dream Office REIT (TSX:D.UN) hasn’t.
Dream owns office property across Canada, with a 60% concentration in Calgary and Toronto. It’s been having a few problems getting occupancy up to standards in Calgary, but other than that it’s been rolling right along. The REIT yields 7.75% and the payout ratio is right around 90%.
What I like about Dream is that it owns some of the best office towers in the country, including 50% of the Telus tower in Calgary, Scotia Plaza and Adelaide Place in TO, and the HSBC building in Edmonton, among others. Here’s a complete list. There’s no retail at least, so that’s a plus. Most of the REIT’s buildings are located right downtown, which makes them attractive places to work, and therefore attractive places to rent.
Dream yields 7.75%, and like Cominar, I think has the potential to grow the share price a little once it fixes whatever the market perceives as being wrong. You’d be picking up a stock trading for around 80% of book value that trades at a discount to its peers too, which is sorta the way we like to do things around here.
Anyway, if you have some stock that’s quadrupled or something since 2009, I’d serious look at finding something a little safer. But what do I know? I’m a giant wuss who cries regularly.