3 Top Dividend Stocks Yielding Up to 5%

Here’s why you need to buy PrairieSky Royalty Ltd. (TSX:PSK), A&W Revenue Royalties Income Fund (TSX:AW-UN), and Silver Wheaton Corp (TSX:SLW)(NYSE:SLW).

| More on:
The Motley Fool

When asked what the song American Pie meant, Don McLean once replied, “It means I don’t ever have to work again if I don’t want to.”

How right he was. To this day, the tune that spent four weeks at number one on the charts in 1972 and rakes him in an estimated $334,000 a year. Every time American Pie is aired, McLean earns a hefty 15¢ royalty.

Royalties are an incredible wealth-building tool. Unfortunately, few of us will ever write a hit song in our lifetimes. However, there is another way to earn regular passive income like McLean—by buying royalty companies.

Royalty companies come in all shapes and sizes. They own the rights to everything from mines and oil wells to songs and pictures. Every time an oil producer pulls a barrel of crude out of the ground, or a business uses a registered trademark, a royalty company receives a fee.

The best part is that many of these firms are publicly traded. And because they pass on most of their income to shareholders, these stocks often sport some of the highest yields around. Here are three of my favourites to get you started.

  1. A&W Revenue Royalties Income Fund

When A&W opened its doors in 1956, it was Canada’s first chain restaurant. Today, A&W is the second-largest fast food company in the country.

Almost all of these restaurants are owned by franchisees—regular, hardworking business people. In exchange for using such a famous brand name, franchisees pay a fee to the A&W Revenue Royalties Income Fund (TSX:AW-UN). The trust collects 3% of all sales at the chain’s restaurants in Canada, which are passed right on to investors.

Today, the fund is attractively priced with a yield over 5%. And unless people develop a sudden preference for broccoli, this trust should keep delivering distributions for years to come.

  1. PrairieSky Royalty Ltd.

Oil well royalties might be the greatest income source ever.

Thanks to the shale boom we’re seeing across the continent, thousands of landowners in places like Texas and North Dakota are striking it rich. However, unless you happened to own acreage in these areas, few people could get in on the bonanza…until now.

PrairieSky Royalty Ltd. (TSX:PSK) makes you a partner with an established landowner. The company holds 5.2 million acres across Alberta that are leased out to oil drillers. In return, PrairieSky gets a cut of the profits on any oil and gas extracted.

It gets better. Because PrairieSky pays no mineral royalties to the government, the stock is absolutely gushing dividends. Today, the firm pays out a monthly distribution of 10.6¢ per share, which comes out to an annual yield of 4.5%.

  1. Silver Wheaton Corp

Perhaps the best way to invest in the mining industry isn’t to buy miners at all. Rather, it has been far more profitable to buy companies that finance new mining projects.

Silver Wheaton Corp (TSX:SLW)(NYSE:SLW) is like the banker of the mining industry. Rather than operate projects itself, the company fronts miners with the cash they need to fund new developments. In exchange, Silver Wheaton receives the right to buy a percentage of the mine’s production at a steep discount.

This has proven to be a smart business model. The company is gushing cash flow, which can be either paid out to shareholders or reinvested back into more projects. And because its costs are fixed, Silver Wheaton isn’t on the hook for any cost overruns that typically plague most miners.

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 Robert Baillieul has no position in any stocks mentioned. The Motley Fool owns shares of Silver Wheaton. (USA). Silver Wheaton is a recommendation of Stock Advisor Canada.

More on Dividend Stocks

Specialty Brands faces higher raw materials costs.
Dividend Stocks

What’s Next for Premium Brands Stock?

Shares of the specialty food production and distribution company have fallen about 25% since last October.

Read more »

Double exposure of a businessman and stairs - Business Success Concept
Dividend Stocks

2 Interesting Buys in Any Market

Here are two intriguing buys in any market climate that offer defensive appeal as well as growth and income earning…

Read more »

Dividend Stocks

TFSA Investors: 3 TSX Stocks for Tax-Free Passive Income

These Canadian corporations have strong visibility over future earnings and dividend payouts.

Read more »

Simple life style relaxation with Asian working business woman healthy lifestyle take it easy resting in comfort hotel or home living room having free time with peace of mind and self health balance
Dividend Stocks

Lazy Landlords: 3 Cheap Canadian REITs to Buy in May 2022

You can become a passive landlord today by investing in Canadian REITs. Here are three cheap REITs to consider this…

Read more »

Target. Stand out from the crowd
Dividend Stocks

4 High-Yield TSX Stocks to Buy Ahead of Their Ex-Dividend Dates

If you have some cash lying idle, consider these high-yielding TSX stocks.

Read more »

growing plant shoots on stacked coins
Dividend Stocks

Passive Income: 3 TSX Stocks With Rapidly Growing Dividends

Worried about inflation? Here are three passive-income stocks to buy that pay rapidly growing dividends.

Read more »

Family relationship with bond and care
Dividend Stocks

Retirees: 4 Safe Stocks to Buy for Decent Passive Income

Retirees can offset the impact of runaway inflation by buying safe dividend stocks to create more cash flows.

Read more »

Canadian energy stocks are rising with oil prices
Dividend Stocks

3 Canadian Energy Stocks to Buy for Reliable Passive Income

Canadian energy stocks are gushing cash. Here's three top stocks that are perfect buys for reliable passive income.

Read more »