We're starting to see sale prices on rate-sensitive stocks. Got your shopping list handy?
One name to consider adding is Canadian Real Estate Investment Trust , a blue chip name in the real estate investment trust sector. In the past month or so, as the market digested the fact that interest rates are on the rise, CREIT fell about 5.5 per cent in price. REITs are considered a rate-sensitive sector, along with utilities, pipelines and telecoms. But CREIT has been hit harder than some other names in the S&P/TSX capped REIT index, which was down 2.5 per cent over the past month.
The case of considering CREIT was made in a recent note from IncomeResearch.ca. "Canadian Real Estate Investment Trust has $5.5-billion in property assets, a favourable payout ratio in the low 70 per cent [range], a sector leading debt ratio at 36 per cent and a long track record of distribution increases," the firm wrote.
IncomeResarch.ca notes that CREIT typically trades with a yield that is 2 percentage points above 10-year Government of Canada bonds. Lately, the spread has widened mildly to 2.3 points. "Unit prices in the REIT segment have been under pressure from concerns about rising interest rates and from uncertainty about the extent of the impact from substantial weakness in the commodity sector particularly on their properties located in Alberta," the firm said. CREIT's portfolio includes industrial, retail and office properties. About 37 per cent of net operating income comes from Alberta, with Ontario next at 28 per cent.
CREIT units had a yield of 4.1 per cent in mid-July, which is the third-lowest yield in the capped REIT index. The reason to consider CREIT is reliable income with the potential for periodic increases. IncomeResearch.ca expects future hikes in the range of 3 to 5 per cent. The 12-month target price is $47, which compares to a mid-July price of $45.25.
Other REITS could be worth a look as well as rates rise. "The tempest of rising interest rates typically creates opportunities," IncomeResearch.ca said. "The REIT sector is no exception."