Interest rates on GICs have fallen stiffly from the five per cent level to 3.5 in the last few weeks.
The safety of GICs and savings accounts is relied upon by many investors.
The alternatives on the market are risky and bring with them the danger of losing your investment.
Some investments are less risky than others. Beware of dangers to your financial health
Preferred shares are less risky than stocks with high yields but those dividend rates are re-set every five years. If interest rates increase in the meantime the value of the preferred share drops.
Reset dividend rates may be higher or lower, depending on current interest rates.
One investment that fluctuates in value but not usually as much as stocks is real estate investment trusts (REITs).
They pay out most of their earnings annually to investors. Many make monthly payments.
RioCan owns some of the biggest and best shopping centres in Canada. In the last few years RioCan has entered the hot apartment market using vacant land on mall sites.
Priced just above $17, RioCan has fallen 15 per cent from the $20 level, based on the loss of several Hudson Bay stores from bankruptcy.
The Bay anchor stores paid much lower rents than others. RioCan says it can easily make up the Bay losses.
This REIT yields 6.69 per cent and investors have a good shot at a capital gain. The company pays out only 60 per cent of earnings.
Three choices tied to fortunes of major retailers are Choice Properties REIT, Crombie REIT and CT REIT.
Choice Properties fortune is linked to the Loblaw stores (SuperStore, No Frills) as owner of properties. Priced at $13.85 Choice yields a nice 5.52 per cent.
Loblaw is in the midst of a significant store build and upgrade.
CT REIT gets most of its revenues from ownership of Canadian Tire stores and malls anchored by Canadian Tire. Priced at $14.52 CT REIT yields 6.38 per cent.
Crombie REIT owns real estate leased by Sobeys, Shoppers Drug Mart and the Province of Nova Scotia.
At the current $14.24, Crombie yields 6.25 per cent.
In a different sector, Automotive Properties REIT owns property and buildings leased by automotive dealerships in Ontario, Quebec, and the four western provinces.
Priced at $10.47, this REIT yields 7.6 per cent.
In the food business, some riskier REITs include A and W, Boston Pizza Royalties, and Pizza Pizza.
Some things about REITs to remember:
REITs pay out earnings and tax-free capital from depreciation as part of dividends. In some the percentage of capital returned is quite high.
When you get a return of capital, there is no income tax on it, but the taxocrats get you when you sell.
The capital return you received is added to the base price so you pay more tax unless the REIT is in a registered account like an RRSP or TFSA.
CAUTION: Remember when investing, consult your adviser and do your homework before buying any security. Bizworld does not recommend investments.
Ron Walter can be reached at [email protected]
The views and opinions expressed in this article are those of the author, and do not necessarily reflect the position of this publication.
