Interest Rates: How to Invest Now No Matter What the Bank of Canada Does Next

It happened again. The Bank of Canada has just raised interest rates for another month, bringing interest rates to 5% as of writing. Canadians are getting some relief, however, as the next proposed rate hike is not expected until September.

At that time, it might be a good idea to start thinking about how to counter this rate hike. Inflation may decrease each year, but those prices are still up from 2021 levels. So, there is not much giving when it comes to making money.

That is, unless you start investing.

How investing can help

If the interest rate is currently at 5%, finding passive income and fixed income can be a lifesaver in your wallet. That’s even if you pick a stock that’s currently underperforming but should bounce back once the rate hike ends.

For example, the real estate sector has long been a good place to invest for passive income. Despite the turmoil in the housing industry, high inflation causing less consumption, and high interest rates leading to lower rental renewals, many Canadians have seen their shares fall in this sector.

However, the drop brings a much higher dividend yield in the process. These yields help you counter interest rates if you find yields higher than normal. Now, let’s look at an example.

Choice Properties REIT

Let’s say you are an investor interested in buying a real estate investment trust (REIT). A good choice in the past Choice Properties REIT (TSX:CHP.UN). The company has a large portfolio – one of the largest in Canada. Its assets include a variety of real estate assets, including residential, utility, and work-related. In addition, many of these are mixed-use properties, with residents who can live, shop and even work in the same building.

Another bonus is that Loblaw is one of the company’s biggest clients. Canada’s largest grocery retailer has been able to continue paying its rent with little issue thanks to an essential service during the pandemic. Choice REIT, while it didn’t come out unscathed, is likely to bring in more than its peers.

However the share price movement will tell a different story. Shares of Choice REIT are down 3.5% over the past year and 13% over the past six months. The real estate market being what it is continues to keep investors on edge, and that brings Choice REIT into value territory.

The good news of Choice REIT

The good news is that Choice REIT is now a valuable stock for investors to consider after all these drops. The company is coming off a tough quarter, and it continues to hurt share prices. However, with the economy showing signs of slowing down, the next quarter should be better.

During its first quarter results, Choice REIT reported net income of $270.8 million, with $268 million in transactions. This included $192 million in acquisitions and $76 million in dispositions. While net income fell, the overall strength of the company rose.

Its occupancy ended the quarter at 97.7%, with retail, industrial and mixed-use properties showing increases of 3.4%, 8.8% and 14.3%, respectively. In addition, it acquired three additional Loblaw properties for $99.1 million. There are several other important acquisitions that should provide cash flow almost immediately and are sure to bring the company’s net income up to snuff.

Bottom line

Shares of Choice REIT currently trade at 15.54 times earnings, with a dividend yield of 5.55%. That yield is higher than the five-year average as well, making it a great deal of a better dividend. What’s more, that’s higher than the current interest rate! You can see recovering returns as well as higher passive income that lasts a lifetime – more than how long the current interest rate lasts.