Why Telus Corporation Is a Better Dividend Stock Than Crescent Point Energy Corp.

Crescent Point Energy Corp. (TSX:CPG)(NYSE:CPG) has a dividend yield over 7%. But Telus Corporation (TSX:T)(NYSE:TU) is the better option.

| More on:
The Motley Fool

If you’re searching for attractive dividend stocks, there are some compelling options in Canada. Many of them come from the energy sector. But be careful: some of these dividends aren’t what they seem.

To illustrate this point, below we look at two dividend stocks. One is a high yielder in the energy sector. The other one is not in energy, and has a much lower yield. But the latter is still the better option.

A high yielder in the energy patch: Crescent Point Energy Corp.

If you’re looking for some income from your investments, how can you turn down the 7.2% yield from Crescent Point Energy Corp. (TSX: CPG)(NYSE: CPG)?

Well, there are a few problems with this dividend. For one, it exceeds what the company actually makes, and thus appears to be unaffordable. To illustrate, Crescent Point made $0.32 per share in income through the first six months of this year. And the company’s dividends over this stretch have totaled $1.38 per share. How is this sustainable?

To put it simply, Crescent Point incentivizes its shareholders (via a 5% discount) to receive their dividends in shares, rather than cash. But this has a perverse effect: the share count increases dramatically, diluting your stake in the company. More specifically, the weighted average share count increased by nearly 40% from 2011 to 2013.

This also makes it harder for Crescent Point to raise its dividend. To no one’s surprise, its payout has remained flat since mid-2008, even though oil prices have generally been strong. Your best bet is to avoid this stock.

A quality dividend outside the energy patch: Telus

At first glance, Telus Corporation (TSX: T)(NYSE: TU) doesn’t have nearly as attractive a dividend as Crescent Point. As of this writing, it yields less than 4%. But it’s still the dividend you should choose.

Unlike Crescent Point, Telus pays a dividend it can actually afford. To illustrate, the company made just over $2 per share last year, well over the annualized dividend of $1.52 per share. Consequently, Telus offers no discount for receiving dividends in shares rather than cash. Better yet, the company is repurchasing shares, so the share count is actually decreasing.

As a result, Telus is able to raise its dividend much more consistently than Crescent Point. Since 2004, the payout has increased by over 400%.

Another advantage for Telus over Crescent Point

It is worth pointing out one more thing, especially in today’s low oil price environment. Volatile energy prices make it much harder to predict how much money Crescent Point will make in the future. And if prices fall enough, eventually the company would have to cut its dividend.

Meanwhile, Telus operates in a very stable industry, with little competition, high barriers to entry, and subscription-based revenue. As a result, earnings are much easier to forecast, and the dividend is much safer.

There are other dividend stocks you should consider for your portfolio, and three are highlighted in the free report below.

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.

Fool contributor Benjamin Sinclair has no position in any stocks mentioned.

More on Dividend Stocks

A meter measures energy use.
Dividend Stocks

Best Stock to Buy Right Now: Fortis vs Emera?

These utility stocks are on a roll. Is one still cheap?

Read more »

money cash dividends
Dividend Stocks

Beat the TSX With This Cash-Gushing Dividend Stock

Investing in fundamentally strong TSX dividend stocks can help you outpace the broader markets over time.

Read more »

Hand Protecting Senior Couple
Dividend Stocks

Transform Your Retirement With This 4.7%-Yielding Dividend Knight

Retirement is supposed to be the best time, but can often be the scariest – except when you have this…

Read more »

canadian energy oil
Dividend Stocks

Deal Alert: This Canadian Dividend Knight, Down 14%, Offers a Rock-Solid Yield

Want income that lasts? Consider Dividend Knights, especially this option that looks like long-term perfection.

Read more »

Canadian dollars are printed
Dividend Stocks

Transform Your TFSA Into a Cash-Generating Machine With Just $25,000

Canadian investors should consider owning TSX dividend stocks such as ENB and CNQ in a TFSA.

Read more »

money cash dividends
Dividend Stocks

How I’d Structure My TFSA With $14,000 for Practically Constant Monthly Income

We could all use some extra cash flow, and when that's the case, the TFSA is your best option.

Read more »

Piggy bank with word TFSA for tax-free savings accounts.
Dividend Stocks

How Much You Really Need to Invest in a TFSA to Make $600 a Month

$100,000 invested in First National Financial (TSX:FN) stock produces over $600 per month.

Read more »

Plant growing through of trunk of tree stump
Dividend Stocks

Building a $5,000 Starter Portfolio With Growth Potential

This strategy has delivered good long-term returns for patient investors.

Read more »