I recently had the opportunity to sit down and talk to an investor in his early 70s.
We started talking about dividends. As somebody with more than 30 years to go until retirement, I view dividends as sort of a nice bonus. Sure, I’d like to get paid to wait, but I view other factors as being more important. If I can find a company with a strong business model, a distinct competitive advantage, and an attractive valuation, I’m going to buy it. I don’t care if it pays a small dividend, a big dividend, or no dividend at all.
He agreed with me, but then laid out his strategy. He explained that, as an older investor, he didn’t really want to hold a stock and not get paid to own it. The universe of dividend-paying stocks is so vast that he feels comfortable enough just choosing from them. And besides, income gives him the nice bonus of being able to subsidize his lifestyle, just in case he and his wife want to spend a little extra money or take a trip. It’s a lot easier to just collect a few dividends than try to figure out which stock to sell to free up some cash.
If income is good, then we can assume that more income is better. Here are three stocks with monster dividend yields.
Dream Office REIT
REITs are often popular choices for income investors and Dream Office REIT (TSX: D.UN) is one of the best in the sector.
The company is Canada’s largest owner of office towers, with 186 buildings and more than 24 million square feet in leasable area. Its largest tenants are some of the biggest and most secure companies in the country, along with various levels of government. And the company’s portfolio is focused on Calgary and Toronto, two cities with terrific outlooks.
Plus, investors are getting shares at a beaten-up price. A year ago, most names in the sector sold off as the market feared higher interest rates. The fear didn’t end up materializing and most of Dream’s peers recovered. Dream didn’t really join them, partially because it reported some weaker results.
This is a great entry point. Shares currently yield more than 7.7% and the dividend is rock solid. At some point, the market will forgive the company and shares will head higher.
The company is a serial acquirer, always making headlines for gobbling up assets. But management has proven time and again that they can take these assets and operate them effectively. Since the end of 2010, the company’s revenue has grown by more than 148%, all while keeping the dividend steady. You can’t argue with those results.
All these acquisitions have given the company a solid land base in Alberta and Saskatchewan, which has the potential to allow it to continue growing production. It also boasts some of the highest netbacks in the field. Although the dividend may appear to be unstable based on net earnings, it’s easily covered by cash flow.
North West Company
Canada’s retail space is a tough place to be. Same-store sales growth is tepid for most of the industry. One company that is largely insulated from these concerns is North West Company (TSX: NWC), which operates stores in small centres in Canada’s north, where it’s usually the only store in town.
Plus, investors are getting a growing dividend, something that usually doesn’t happen with a stock that’s yielding close to 5%. Its quarterly payout has grown from 24 cents a share in 2011 to 29 cents today. It’s not huge growth, but considering the sector, investors should be happy with it.