понедельник, 1 июня 2020 г.
Warning: House Prices Could Drop 18% – and These REITs Could Drop Further
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Canada’s housing market is a national sport. House prices have been relentlessly surging for over a decade. Now, with unemployment at a record high and an ongoing pandemic, Canada’s housing market could finally deflate.
The Canadian Mortgage and Housing Corporation (CMHC) has forecast falling home prices of to 18 per cent in the 12 months ahead. That’s the worst-case scenario. CMHC’s base case forecast was a 9% drop.
It’s also worth noting that these forecasts are for average prices across the country. Expensive markets such as Toronto or Vancouver could experience deeper declines in value. That, of course, is bad news for homeowners and real estate investors. However, it also impacts dividend investors who rely on real estate investment trusts (REITs).
REITs are tax-advantaged structures for rental income. These listed securities can offer better dividends than traditional stocks because they can access more leverage and extract more free cash flow from rents. If the housing market collapses, leverage tightens and rental income is squeezed.
Residential REITs with higher leverage or more exposure to major cities could be at the most risk. Here are two REITs that could probably decline faster than the national housing market.
Northview Apartment REIT
Northview Apartment REIT (TSX:NVU.UN) stock dipped when the COVID-19n outbreak began, but has since recovered all its lost value. In fact, the stock is now 13% higher than at the start of the year. Investors seem to be optimistic that the housing market will hold up better than expected.
However, Northview’s portfolio looks overexposed to some vulnerable markets. More than a third of its multifamily units are located in Ontario. Nearly 10% are in Toronto and its surrounding areas, which are at the apex of the housing market crisis. However, several thousand units are in what I would call university towns.
The housing markets in Guelph, Kitchener and Hamilton, hinge on the arrival of university students. This year, of course, universities have switched to virtual classes, which means student arrivals will plunge. International student arrivals could disappear altogether, putting pressure on these overvalued housing markets.
Northview also has a sizable debt burden. Net debt to earnings before interest, taxes, depreciation and amortization (EBITDA) was as high as 10.1. While the debt coverage ratio was 1.60. These risks don’t seem to be priced into the REIT’s elevated stock price.
InteRent REIT
InterRent REIT is similarly exposed to vulnerable markets. Two-thirds of its portfolio is concentrated in the Greater Toronto Area or Montreal. While Montreal’s housing market isn’t as overheated as Vancouver or Toronto, it’s relatively overvalued.
Rents in Montreal’s downtown are dropping faster than anywhere else in Canada. Average one- and two-bedroom apartment rents declined 5.2% and 2.6%, respectively, in April. The flood of Airbnb units entering the long-term rental market is the prime reason for this plunge in tourist-heavy Montreal.
The stock price has recovered its losses and is flat year to date. However, a housing market crash focused on Canada’s largest cities could be detrimental to InterRent’s book value and rental income.
Bottom line
The housing market is due for a correction, and prices in Toronto and Vancouver could face steeper declines. REITs focused on major cities or with too much debt could magnify the incoming crash.
Before I forget…
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Fool contributor Vishesh Raisinghani has no position in any of the stocks mentioned.
The post Warning: House Prices Could Drop 18% – and These REITs Could Drop Further appeared first on The Motley Fool Canada.
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CERB Warning: Make $8000 in Dividend Income Instead
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Canadians are frantically searching for cash these days. The COVID-19 pandemic has brought not only disease to our doorstep, but also financial strain. Layoffs, business closures, and even the collapse of industries are just some of the things affecting the economy.
It’s left many looking for relief, and the Canadian government offered it up with the Canadian Emergency Response Benefit (CERB).
CERB isn’t for all
As of writing, almost 15 million Canadians applied for the CERB. That’s over $40 billion in benefits paid so far. With the benefit set to continue until at least August, that leaves even more opportunity for Canadians to sign up.
But there’s now a word of warning being passed around. Actually, several words. While the CERB might look like free money, it certainly isn’t. In the first place, if you aren’t eligible the Canada Revenue Agency (CRA) will come knocking.
Not tomorrow, but eventually you will have to pay back every cent of that $8,000 in cash from the 16 weeks you collected it. If you are eligible, that money still must be claimed on your taxes, or again you’ll pay up later. And finally, the more people sign up, the more we all have to pay in our taxes moving forward.
Granted, there are absolutely people out there who desperately need the CERB. So please let them have it. If you don’t, you can’t still bring in $8,000 in cash this year. And the great news? Using your TFSA means it’ll all be tax free.
Dividends galore
If you have the cash on hand, you can certainly bring in $8,000 in dividend income by choosing the right stocks. Luckily, most stocks are trading at a significant discount right now. That leaves the ability to bring in even more passive income than you normally would. That’s way better than the CERB, because now you can bring in that income every year, not just once.
The stocks I would consider are ones that are likely to be around now and after the market crash. Enbridge Inc, Canadian Imperial Bank of Commerce and Slate Retail REIT are all great choices in this case.
Enbridge is a pipeline company with long-term contracts, which means its dividends will be secure for decades to come. On top of that, it has a growth portfolio for the next few years that should see its share price and dividends increase regularly. CIBC is another great option as one of Canada’s Big Six Banks, with the highest dividend yield of the banks.
It has a lot of room to grow, and is a great price because of its exposure to the housing industry at the moment. Finally, Slate REIT has been hit because of its ownership of retail stores. But when the dust settles, this stock should see a huge upside that should boost its already significant dividend yield.
Bottom line
By choosing these stocks, here’s how your dividend income portfolio could look if you and your partner use your combined TFSA contribution room. Investors could put $37,450 into CIBC for $2,500 in dividend income, $33,844.48 for another $2,500, and $22,352.31 for $3,000.
That would bring in $8,000 of passive income each year for an initial investment of $93,646.79. That’s $8,000 every year, whereas CERB can only give you 16 weeks.
With that extra TFSA contribution room, here are some cheap stocks to buy up now.
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More reading
- 3 Dividend Must-Have Investments
- Invest $1,000 in This Oil Stock Today to Profit in 2021
- Warning: House Prices Could Drop 18% – and These REITs Could Drop Further
- Are Gold Stocks a Buy After the Recent Pullback?
- 4 of the Best TSX Gold Stocks That Pay Dividends
Fool contributor Amy Legate-Wolfe owns shares of ENBRIDGE INC. The Motley Fool owns shares of and recommends Enbridge.
The post CERB Warning: Make $8000 in Dividend Income Instead appeared first on The Motley Fool Canada.
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Music Video Director for Pop Superstars Dives Into Crypto Trading
Timor Invest
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Famed pop music video director Joseph Kahn has announced that cryptocurrency trading is his new favorite hobby.
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воскресенье, 31 мая 2020 г.
Invest $1,000 in This Oil Stock Today to Profit in 2021
Timor Invest
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Canadian oil stocks are under considerable pressure. Oil’s sharp collapse, which saw West Texas Intermediate (WTI) plunge into negative territory for the first time ever, is hitting the energy patch hard. While the immediate outlook remains gloomy, this has created an opportunity to acquire quality drillers at once in a generation prices.
One oil stock that stands out is Frontera Energy (TSX:FEC). The driller, which emerged from the bankruptcy of Pacific Exploration and Production, has lost 64% since the start of 2020. This is significantly greater than the 55% decline of the international Brent benchmark price.
While there are plenty of headwinds ahead, there are signs that Frontera is very attractively valued, making it a speculative buy for contrarian investors betting on higher oil.
Why invest in oil stocks?
A key advantage of investing in oil companies rather than oil is their levered exposure to the price of crude. This means that when oil plunge their price decline, like Frontera’s, typically exceeds that of benchmark oil prices.
Conversely, when oil rallies it means they generally experience far greater gains than oil, meaning they can deliver outsized returns to investors.
Key is identifying those upstream oil producers that possess quality assets and strong fundamentals, allowing them to weather the current crisis.
Quality oil portfolio
Frontera owns a diversified quality portfolio of oil assets across South America, with its main producing acreage located in Colombia. This not only gives Frontera a handy financial advantage by allowing it to access Brent pricing, which trades at a premium to WTI, but benefit from lower operating expenses.
As a result, Frontera reported a credible first-quarter 2020 operating netback of US$16.21 per barrel of oil sold. The driller’s ongoing push to reduce operational costs and shutter non-economic production will keep its operations cash flow positive. That will be aided by Colombian government initiatives to reduce pipeline transportation costs.
Solid fundamentals for an oil stock
One of Frontera’s key strengths is its considerable liquidity and solid balance sheet. It finished the first quarter with US$265 million in cash and another US$30 million of restricted cash. This gives Frontera considerable financial flexibility, positioning it to emerge from the latest crisis relatively unscathed.
Importantly, Frontera has a very manageable US$364 million of long-term debt and lease liabilities. There are no debt repayments due until 2023, giving Frontera considerable breathing space to overcome the current crisis.
What makes Frontera a top oil stock to buy (aside from its solid balance sheet and quality assets) is that its shares are on sale. The driller is trading at a deep discount to the after-tax net asset value of its proven and probably oil reserves.
At the time of writing, Frontera’s price of $3.55 per share is less than a third of its $11 per share after-tax net asset value. This highlights the considerable potential upside available when oil firms and Frontera’s stock rallies.
Foolish takeaway
Frontera has long failed to unlock value from its oil assets. Finally, toward the end of 2019 it had resolved many of its legacy issues and was on track to reward investors, but this was derailed by the latest oil price collapse and coronavirus pandemic.
Nonetheless, Frontera will survive the current crisis. As oil prices rally higher, it will deliver considerable value for shareholders during the second half of 2020.
Looking for bargain stocks that could deliver outsized returns?
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More reading
- $1,000 Invested in Each of These Oil Stocks Could Make a Fortune in 5 Years
- 2 Canadian Oil Stocks to Buy Today and Profit in 2021
- 1 Top Canadian Oil Stock to Buy Today and Profit From a 2021 Oil Price Rally
- 2 Top Canadian Oil Stocks to Profit From the Oil Price Rally
Fool contributor Matt Smith has no position in any of the stocks mentioned.
The post Invest $1,000 in This Oil Stock Today to Profit in 2021 appeared first on The Motley Fool Canada.
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3 Dividend Must-Have Investments
Timor Invest
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Generating a stable income for retirement is one of the primary goals of any investor. In order to accomplish that goal and remain diversified, investors should invest in a multitude of stocks across a broad section of the market. Here are some income-producing investments that should be income must-haves for nearly any portfolio.
This is a dividend must-have
Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) is neither the largest or the most well-known of Canada’s big banks. It is, however, a well-diversified bank with a handsome dividend and plenty of growth potential.
When it comes to international expansion, Scotiabank opted for the Latin American nations of Mexico, Chile, Columbia, and Peru. In contrast, nearly all of Canada’s other big banks opted towards expanding into the areas of the U.S. market. That’s not to say that Scotiabank didn’t expand elsewhere — it did, but the focus was on those four nations.
Those four nations are part of a trade bloc known as the Pacific Alliance. By expanding throughout those nations, Scotiabank has effectively become a familiar face to do business across the region. This has led to impressive growth during earnings season, also fueling the strong growth of Scotiabank’s attractive, must-have dividend.
Scotiabank currently offers a quarterly distribution every January, April, July, and October that works out to a handsome 6.28% yield.
A solid, stable utility
Few investments can offer the defensive peace of mind that Fortis (TSX:FTS)(NYSE:FTS) has. Fortis is one of the largest utilities in North America with a diversified portfolio of regulated facilities that is scattered across the U.S. and Canada.
One of the main benefits of investing in a utility stems from the business model itself. Utilities provide a regulated service in exchange for a recurring revenue stream. The terms of those agreements are set out in regulated long-term agreements that can span decades. That stable and recurring revenue stream leads to handsome dividends for investors.
Fortis offers a quarterly dividend that currently works out to a respectable 3.58%. Additionally, Fortis boasts well over four decades of consecutive annual bumps to that must-have dividend. This is something that few companies can offer, and Fortis remains committed to continuing that trend.
Fortis provides that handsome quarterly distribution every February, May, August, and November.
Your cell phone can make you rich!
Telecoms represent one additional area to consider. BCE (TSX:BCE)(NYSE:BCE) in particular operates one of the largest wireless networks in Canada as well as a vast media empire. That media segment includes TV and radio stations as well as an interest in professional sports teams.
BCE’s wireless segment is what investors should be most excited about. Wireless connections have evolved in the past decade from communications devices to become a must-have of our digital life. In short, an endless array of new data-hungry apps and devices provide a recurring revenue stream for BCE and in turn, a generous dividend.
BCE’s quarterly dividend currently works out to an appetizing 5.91% yield. Apart from the growing necessity of wireless connections, worth noting is that BCE has been paying dividends for well over a century. In other words, this makes BCE an incredibly stable investment to make for any portfolio of dividend must-have investments.
BCE has distributions in March, June, September, and December.
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More reading
- This Canadian Bank Stock Is a Must-Buy Right Now
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- These 3 Canadian Dividend Kings Haven’t Missed a Payout for 100+ Years
- TFSA Investors: Got $6,000? These 3 Stocks Are Looking Good
- 3 Stocks to Buy With Dividend Yields of More Than 7%
Fool contributor Demetris Afxentiou owns shares of Fortis Inc. and The Bank of Nova Scotia. The Motley Fool recommends BANK OF NOVA SCOTIA.
The post 3 Dividend Must-Have Investments appeared first on The Motley Fool Canada.
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