Here’s a sad statistic for fixed-income investors.
The yield on a five-year Government of Canada note is now a measly 0.62%. That’s less than half the rate it paid out in December.
Pity the poor saver. No wonder dividend stocks have become such a popular alternative. Many still sport yields of 5%, 10%, even 15%. And because profits generally go up over time, shareholders can count on a growing stream of income in the future.
So to help out the income starved investor, I ran a screen for the highest dividend-paying firms on the Toronto Stock Exchange. The only limitation I’ve set is that companies must have a market cap greater than $500 million. I have also excluded stocks for which a special one-time dividend heavily influenced the yield.
Here are the top 10 highest-yielding stocks the screen produced:
|
Company Name |
Market Cap (Billions) | Dividend Yield (%) |
|---|---|---|
| Pacific Rubiales Energy (TSX:PRE) | $1.17 | 21.8% |
| Pengrowth Energy (TSX:PGF) | $1.87 | 14.2% |
| Northern Blizzard Resources (TSX:NBZ) | $0.83 | 11.8% |
| Surge Energy Inc (TSX: SGY) | $0.57 | 11.7% |
| Canadian Oil Sands (TSX:COS) | $3.93 | 10.1% |
| Canoe EIT Income Fund (TSX: EIT.UN) | $1.12 | 9.8% |
| Freehold Royalties (TSX: FRU) | $1.34 | 9.6% |
| Enerplus Corp (TSX: ERF)(NYSE: ERF) | $2.44 | 9.4% |
| Norbord Inc (TSX:NBD) | $1.45 | 9.3% |
| Crescent Point Energy (TSX:CPG)(NYSE:CPG) | $13.77 | 9.1% |
Source: Yahoo! Finance
Let me make one thing clear about this list. These are not formal buy recommendations, only a place to begin your research. That’s because a high yield can sometimes be a red flag, indicating that investors don’t believe the dividend is sustainable.
Take Canadian Oil Sands, for example. This stock has long been adored by investors for its juicy payout. However, in the face of lower oil prices, it’s not clear if the business can generate enough cash to maintain the current dividend.
Assuming oil prices around US$75 per barrel, Canadian Oil Sands is expected to generate $0.35 per share in free cash flow this year. The problem? Today, the firm has promised to pay out $0.80 per share in dividends annually. Unless oil prices rally significantly (and soon), there’s no way this current situation is sustainable.
Surge Energy is another oil driller where the math no longer works. According to analysts’ estimates compiled by Reuters, the firm is expected to barely breakeven next year. However, management has pledged to pay shareholders $0.30 per share in distributions annually.
That all said, there are some good names on this list. Crescent Point Energy shares, for instance, now sport a whopping 9.1% yield. That’s one of the highest payouts in the blue-chip S&P/TSX 60 index.
Of course, the obvious question is whether lower oil prices will put Crescent Point’s dividend at risk, too. However, investors shouldn’t be too worried given that the company is still generating ample cash flow even at today’s rates. And before oil started plunging, Crescent Point locked in prices for much of its future production.
We would need to see the price of oil fall below US$40 per barrel – and stay there for six months or so – before management would even consider a distribution cut
High-yield stocks are a great place to look for new income ideas. Just dig into the financials to ensure you’re buying a sustainable payout. You don’t want to accidentally purchase a dividend time bomb.
