3 Hidden Yields Paying Up to 9.1%

These stocks pay out 5.1%… 5.4%… even 9.1%.

| More on:
The Motley Fool

By using this simple indicator I have been able to identify companies with yields of 5.1%… 5.4%… even 9.1%.

These are solid, blue-chip companies. Many are household names that I’m sure you’re familiar with.

However, you will never see these payouts posted on Yahoo! Finance. In fact most investors have never heard of this metric.

Most brokerage and investment websites don’t look past the standard payout. They simply take a company’s most recent dividend and multiply it by the payment frequency to calculate a stock’s annual dividend. That means the figure investors see often vastly underestimates the true annual yield of the stock.

To get a true sense of how well a company rewards its investors, you have to dig deeper. That’s why more and more analysts are using a metric called shareholders’ yield. In contrast to the standard dividend yield, shareholders’ yield adds together the dollar value of all cash distributions, shares repurchased, and debt repaid.

In other words, shareholders’ yield gives you the only true picture of how much cash a company is returning to its owners. Case in point, check out some of the firms below.

Company Dividend Yield Shareholders’ Yield
Suncor Energy 2.20% 5.09%
Tim Horton’s 2.15% 5.41%
Agrium 3.33% 9.10%

Source: Google Finance

Let’s consider Canada’s favourite coffee chain Tim Hortons (TSX: THI)(NYSE: THI). The company has paid a dividend every quarter since its initial public offering in 2006. Just as important, Tim’s has a good track record of increasing those distributions, which are up 260% over the past five years.

However, if you checked a popular financial website like Yahoo! Finance, you will see that the stock yields a measly 2.2% today. That’s OK, but not high enough to get us income investors excited.

There’s only one problem with this figure: it doesn’t reflect how much cash the company has actually returned to shareholders. Tim Hortons has a great tradition of buying back stock. Over the past decade the company has repurchased over a quarter of its outstanding shares. To not account for this would be a grave oversight.

Over the past year alone, Tim’s has been taking advantage of today’s ultra low interest rates to fund its buyback program repurchasing over $720 million of its own shares. Once you make the needed adjustments to the stock’s stated payout, you discover the Tim Hortons true yield is over 5.4%!

Suncor Energy (TSX: SU)(NYSE: SU) is another hidden ‘yielder’. Its posted dividend payout is only a measly 2.2%. Once again, that’s barely enough to deserve a passing glance from yield hungry investors.

However, new Chief Executive Steve Williams is on a mission to return as much cash to shareholders as possible. Since 2011, management has repurchased over 11% of the company’s outstanding shares and has paid off $1.5 billion in debt. After taking this into account, the stock yields a respectable 5.1%.

Finally, Agrium (TSX: AGU)(NYSE: AGU) has always been a dividend investor favourite. With its 3.3% payout, the stock already boasts a hearty yield. However, once you dig deeper into the financial statements, you discover that the company has been aggressively buying back shares and paying off debt. Once this is accounted for the stock suddenly yields a remarkable 9.1%!

The bottom line: Look beyond the stated payout published on most financial websites. By factoring in share buybacks, you can reveal some of the market’s hidden yields.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Investing

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Tuesday, February 27

The U.S. consumer confidence data and bank earnings from Canada will remain on TSX investors’ radar today.

Read more »

grow money, wealth build
Dividend Stocks

3 Stocks That Will Make You Richer in 2024

When it comes to creating riches in 2024, these companies offer the best, most solid chance while providing dividends while…

Read more »

oil and gas pipeline
Dividend Stocks

Is it Too Late to Buy TC Energy Stock?

TC Energy is up 17% in recent months. Are more gains on the way?

Read more »

dividends grow over time
Dividend Stocks

If You Invested $1,000 in goeasy Stock in 2014, This Is How Much You Would Have Today

When it comes to growth, it's hard to beat goeasy (TSX:GSY) stock. But what should investors consider for future growth,…

Read more »

Utility, wind power
Energy Stocks

Brookfield Renewable Partners Stock: Buy, Sell, or Hold?

BEP stock (TSX:BEP.UN) now trades at half its share price back in 2021. So what should investors do with this…

Read more »

Supermarket aisle with empty green shopping cart
Stocks for Beginners

3 Retail Stocks to Buy Hand Over Fist in February

These retail stocks offer huge growth for those getting in now and holding long term, especially after earnings demonstrate their…

Read more »

Value for money
Dividend Stocks

Better Buy in February 2024: Magna Stock vs. BCE Stock

Both Magna stock (TSX:MG) and BCE stock (TSX:BCE) have faced troublesome stock prices of late, but which is offering value?

Read more »

Growing plant shoots on coins
Dividend Stocks

3 No-Brainer Dividend Stocks to Buy With $1,000 Right Now

These three dividend stocks look like an excellent addition to your portfolio.

Read more »