In today’s era of low interest rates, folks who want income from their investments seemingly have two choices. They can either suck it up and accept a lower, safer yield, or take all sorts of risks navigating the high-yield market.
I won’t waste time trying to convince anyone the high-yield market is as safe as a government bond or GIC, but I still think it gets a bad rap. There are dozens of companies that yield 6%, 7%, or even 8% that have been paying dividends for years without the slightest hiccup. Sure, you’ll have to keep a little closer eye on them, but adding a few high-yield stocks to a portfolio can really goose current income.
Here are five yield ideas for your portfolio, each paying at least 8% annually.
Thanks to cost overruns on its CSeries commercial jet program, Bombardier Inc. (TSX:BBD.B) was forced to suspend the dividend on its common shares earlier this year. Management is attempting to hoard every dollar they can just in case it’s needed to bring the CSeries to market.
But the company still has several issues of preferred shares that pay generous yields. The most junior issue is the series 4 preferred share, under the ticker symbol BBD.PR.C. Because these shares are last on the totem pole in the event of a major credit event, they currently yield 8.7%.
Although there’s still a risk that further CSeries delays will complicate the company’s already precarious financial footing, there doesn’t look to be much risk of preferred share dividends getting cut—at least in the short term. The company is sitting on more than $5 billion in cash, while series 4 dividends run more than $15 million annually.
Because fears of higher upcoming interest rates have caused a sell-off of the entire sector, investors who act now can secure an 8.5% yield on Dream Office REIT (TSX:D.UN).
Upon closer inspection, it doesn’t appear that Dream is anywhere close to cutting the payout. The company generated $2.88 per share in funds from operations in 2014, easily enough to cover its $2.24 annual distribution. Its 78% payout ratio puts it in line with some of the safer dividends in the sector.
The market continues to expect weakness from Toronto and Calgary, two of Dream’s larger markets. But thanks to solid management and its above average portfolio, the trust barely seems to be affected by markets where office supply is outpacing demand.
Like Dream, shares of Cominar Real Estate Investment Trust (TSX:CUF.UN) are selling off because of interest rate concerns and imagined upcoming weakness. The market is also concerned it took out a little too much debt while financing its latest acquisition.
But the company has a payout ratio of under 90%, and has large investments from both the founding family and Quebec’s pension giant, Ivanhoé Cambridge. It has also spread out from Quebec, acquiring assets in Toronto, Calgary, and Atlantic Canada. Now it just needs to focus on paying back debt, and the market should reward it with a higher share price.
Student Transportation Inc. (TSX:STB)(NASDAQ:STB) is one of North America’s largest school bus transport companies, getting more than 12,000 students daily in more than 300 school divisions safely to and from school.
It also pays a pretty safe dividend, delivering investors a monthly dividend of 4.6 cents per share uninterrupted throughout its life as a publicly traded company. That’s a pretty darn good record for a stock that yields 8.9%.
This dividend is a little less stable than the others, but appears sustainable. The company just issued more than 12 million shares, paying down high-interest debt in the process. That bodes well for future payouts.
Have you ever been forced to take out cash at one of those private ATMs that costs about $3 per shot? Chances are that money came from a Directcash Payments Inc. (TSX:DCI) ATM. The company also provides payment processing capabilities for retailers, as well as prepaid Visa cards.
Directcash might be the safest 8.8% yielding stock on the TSX. Free cash flow in 2014 was $67 million, while it paid out just $25 million in dividends. That’s a payout ratio of just 37%, which is lower than most banks or telcos, companies that pay dividends half as generous.
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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 Nelson Smith owns shares of Dream Office REIT.