Where You Can Find 11.5% Yields

Canada has been an income investor’s playscape for decades.

That reputation comes thanks mainly to Canadian trusts, which aren’t taxed at the corporate level as long as they pay out the bulk of earnings as dividends. That’s allowed them to spit out double-digit yields like clockwork. So many businesses opted for the trust structure that lawmakers decided to start taxing them like corporations in 2011.  [Read: Don’t Buy a Canadian Trust Until You Read This]

Does that mean high yields from Canada are history?

Hardly! There’s another group of Canadian securities shooting off tax-advantaged high yields; I’ve found some as high 11.5%. Best of all, conditions for this group look to be on an uptrend.

Canada was one of the first countries to recover from the global recession. GDP grew +6.1% in the first quarter… nearly all jobs lost during the recession have been recovered… and Canada has even had to start raising interest rates thanks to its recovery.

These are good signs for investors in Canadian REITs.

Yes, just like the U.S., Canada has REITs too. But I doubt you’ve heard of them before. Canada has about three dozen REITs in total. Yields average about 8%, but I’ve seen them creep upwards of 10% — even nearly 12% in some cases. That’s what you get when business is booming.

Unlike U.S. real estate, Canada’s property market is thriving. Occupancies average 97.4%, according to a June report by credit rating agency DBRS. Moreover, Canadian REITs are taking full advantage of low interest rates (even though they are now rising slightly) to refinance existing debt at historically low rates. For example, Riocan (TSX: REI-UN), Canada’s largest REIT, recently reduced a mortgage on one of its properties by about -1.8% when it secured a five-year mortgage at 4.2%, a record low for the trust. Management estimates the savings from refinancing its debt this year should equate to about $0.02 per share.

These factors have helped Canada’s largest REITs return nearly +18% so far this year, according to the S&P/TSX Capped REIT Index. In contrast, the S&P 500 is up only +5%.

But most of us aren’t investing in Canada’s REITs. Why aren’t we flooding the sector with cash?

The answer is twofold. First is the market’s sheer size. Canada’s property market is very small compared to the U.S. I told you above that only about three dozen are traded.

But I think the biggest reason is that Canadian REITs trade mostly on the Toronto Stock Exchange (TSX)… and that scares off stateside investors. Here’s the good news: It doesn’t matter.

Most U.S. brokers can fill orders on the TSX. Fidelity, E*Trade, and Schwab all offer access. Buying Canadian shares can actually be as simple as buying those in the U.S. At worst, it might take an extra phone call to your broker.

One thing you do have to watch — currency rates. Canadian REITs trade and pay dividends in Canadian dollars. But remember that those amounts will be converted back to U.S. dollars if you’re an American investor. This feature has actually been good news since about the start of 2009; the Canadian dollar has gained about +15% over that time. An appreciating Canadian dollar makes dividends and share prices worth more to U.S. investors, making Canadian REITs a solid way to play a weak U.S. dollar, too.

Good Investing!

Carla Pasternak’s Dividend Opportunities

P.S. — I mentioned above that Canadian REITs yield up to 11.5%. That comes courtesy of Scott’s (TSX: SRQ.UN). As my High-Yield International readers know, this REIT isn’t my favorite, but it certainly pays a mouth-watering monthly yield.

Mark Leibovit of VRTrader.com joins me right now. Mark, now that gold is hitting the $1,300 mark can you put a little perspective on that move for us?

Mark Leibovit: Well, we were looking for at least to $1,300 here over the short term after we had that correction down to $1,156 from the $1,250 area.  I applied what I call a swing count measurement, meaning that the amount of that decline is probably what should exceed the high on the next trade; so that puts you up around the 1,350 area. So I think that we’re moving towards that first objective. Of course these are just short or the near term comments not big picture where I’m looking for much bigger numbers. But, volume is slowing here a little bit up here near the $1,300 but I’m still going to give it the benefit of the doubt, see how close we get to 1,350. Unless volume really reverses. There’s going to be a shake out here at some point and there are seasonality factors coming into the October period for the markets. That includes all markets and a correction could unfold and I don’t see any major pull back numbers at the moment. If the volume comes in we’ll have to adjust but the trend’s your friend and unless you’re looking to scalp it here for a few bucks I’m not looking for any big reversal.  I’m looking for 1500 as the next big number. So let’s see if we can generate another swing count that will generate that higher target.

Michael Campbell:  It worries me now though that gold is now starting to get what I call the front page mention.  Does that factor in at all?

Mark Leibovit: Well I try put three pieces together, the cyclical, contrary opinion and volume. That’s my Mantra so to speak. So (front page treatment) is a concern but we’ve had this before.  I remember over a year ago gold was being sold out of ATM machines somewhere in China and I had comments from people that if they could buy gold out of the ATM machines it must be the end. And I’m just wondering who really owns gold compared to the talk about it. Has it really been a bubble in the way real estate was where you see parabolic advances in price. I still have this comparison in my mind when they are standing in line to buy gold the way they were standing in line to buy condors here in Phoenix three four years ago that’s when you start worrying that well maybe the real top is here. Front page news maybe a sign that we’re hitting a short term topping area so yes I could rationalize where it could pull back a $100 an ounce or something like that but it doesn’t look like a blow off to me . Technically it looks a very orderly advance and the big picture is still very bullish and where I’m coming from. I’m not looking to exit those coins and those bars.

Also is $1,300 an ounce expensive. If you are looking for $2,000  to $3,000 you’ve got to step back and say what are we talking about here? A traders comment versus an investors comment? The big 20 year cycle into 2020 is in place so the wind is at Gold’s back.

Michael Campbell: I remember back in 1980 when you said they were literally lining up around the block and it led every news cast. When oil exploded in 2008 and ran from the  75 to the 145 range, is that the type of blow off in Gold we can expect?

Mark Leibovit: Gold in 1980 doubled really quick over relative short period of time. You have to get what I refer to as  parabolic vertical assent on your chart. Maybe we’ll get it and we’ll get a big blow off here and we’ll all make a lot of money. There is so much press nowmaybe that’s what will happen but I don’t see any big reversals telling me run for the hills.
Michael Campbell: Earlier this year you were up at the world outlet conference and you said that your numbers were looking this year were $1,300 – $1,350 then you’d have a look again when we’re there. Well that’s all great Mark, well what are you going to do for us now?

Michael Campbell: What do you see in silver?

Mark Leibovit: My confidence level in silver is not as great as gold. Technically,  21.50 was my official trading target. Big picture, we hear all kinds of comments, $50, $400 from analysts. I have no way of projecting that number but the highest number I have here is maybe $23.50. We’ll look at it then but I could rationalize Silver to the 28 dollar target. Its sort of incremental based on the trading action and the volume that comes in on the way up. I’m interested in holding Silver because obviously there’s a relationship between the two metals. Again, I have more confidence in the gold chart and the analysis I’ve done so it’s sort of a tag along situation than anything else.  We did get to $21.49 yesterday on the spot market so it is getting to the point where if I’m trading, do I start looking over my shoulder and take a little profit here? I don’t see any reversal to the down side yet.

I’m not sitting here thinking we’re going to have a big shake out like we had after that peak at 2008 where it’s $20 it goes back down to $9. I think you should be looking for a couple or $3, $4 an ounce. In the worst case if we do get a shake out tied to a correction in the gold market, my answer to you is hold on.  The trend in gold is good and they seem to be moving together. The way my stuff works Mike is as volume increases as we go higher I get higher targets so I consider myself one of the dumbest people out there. I just follow the tape and the volume and that’s just tells me where it going and I could sit here try and make big picture projections. The gold I do have is a higher measurement so that’s pretty much the best way I can answer you.

Michael Campbell: I want everyone to hear that Mark is making a very clear distinction between what he calls  the investment side, the longer term and the short term trading picture and its not the same way of playing it.

Mark Leibovit: We are in an up trend and there is nothing that says we are in a down trend. I’m trying to advise measurements here. From $14 an ounce up to about $19  you can draw a big rectangle on the chart and you take the measurement of that rectangle and you add it to the top part of the rectangle at the height of it and you get  roughly about $5 an ounce. It took out the top of the rectangle which was around $19.50. so you can rationalize it up to $24.50 and maybe$ 23.50 was a little more conservative so that could be a big area where maybe we could hit a wall for while.

Michael Campbell: I can’t let you go without talking a little bit about the overall stock market. Were do you see the dow at this point?

Mark Leibovit: I have to say upfront that I was surprised by the strength of the stock market here.  We saw a possible rally into September based on the seasonality but the intensity of the move and it went a bit higher than I had thought.  But the fact that it did break out Michael and the fact we did get some volume out of it does suggest that we to point to some higher measurement here. I think we can still see a pull back and probably we’ll see it start almost at any time in October . I don’t necessarily predict a crash though I remember in ‘87 were we had a strong September and then October completely fell apart.  I think you know we have November election issue here and they’re aggressively pumping the printing press 24/7 but to answer your question about the Dow we would be looking now for a test of the April highs of Dow somewhere over the 11000 and the S&P 500 in the  1,220 area again. Then we start talking about higher measures if and when it goes through that. I would not be a buyer here as what is this is this a bear market rally.   I think the TSX is a whole different story, looking at your markets  it’s obviously a bull market. It looks terrific to me in terms of the overall trends and we do have higher targets. I don’t know whether the US market can make that kind of claim yet and we’ll see what we’ll do after November, December. My suspicion is, its probably just nice technical rally for a while tied to the election and the seasonality so I’m not going to sit here saying we’re entering a two year three year bull market I don’t see that at all but as you know,  I flow with the numbers.

Michael Campbell: Is some November electioneering,  like the Bush tax cuts remaining in place, affecting the Stock Market? 

Mark Leibovit: They are getting a little giddy about it right now so this is like the good news driving the market up.  The real problem down here is until home prices start to appreciate at some point down the road I don’t think consumers are coming back,  but that’s a whole other story.

Michael Campbell: Great to talk with you Mark, Its nice to here your voice.

Mark Leibovit: Absolutely Michael, nice talking to you and I’ll see you in Vancouver in February.

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