Buying stocks based on yield alone is asking for trouble. Just ask anyone who lost money on AGF, Yellow Pages, or Canadian Oil Sands.
But can a stock offer both safety and a high yield? Yes, if you know where to look. By sticking to strong businesses with sustainable cash flows, light debt loads, and strong management teams, you can avoid potential dividend traps.
So, to help get you started, I’ve assembled a list of the top five high-yield stocks in Canada. Of course, any payout over 5% comes with some risk. None of the stocks below should represent a core holding in any retirement portfolio. However, each one is a solid compliment for yield-focused investors and can serve to “juice” your portfolio income.
| Stock |
Current Yield |
Market Cap |
|---|---|---|
| Dream Global REIT | 8.1% | $1.1 billion |
| First National Financial Corp. | 7.1% | $1.3 billion |
| Cominar Real Estate Investment Trust | 8.0% | $3.1 billion |
| TransAlta Corporation | 6.6% | $3.1 billion |
| Crescent Point Energy Corp. | 9.3% | $13.6 billion |
Source: Yahoo! Finance
Let’s say a few words about these companies.
As regular readers know, real estate investment trusts, or REITs, are a special type of holding company. A management team serves tenants, maintains investment properties, and passes on the profits to investors. Even better, these trusts are eligible for big tax breaks, which allows them to pay out consistent, oversized rent cheques.
This makes REITs a great way to invest in real estate assets without the headaches. And because REITs are publicly traded, you can buy and sell your units just like any common stock. Dream Global REIT (TSX:DRG.UN) and Cominar Real Estate Investment Trust (TSX:CUF.UN) are two of my favourite names in the space.
For investors who want a higher claim on real estate earnings, mortgage owners like First National Financial Corp. (TSX:FN) are a safer alternative. Lending people money to buy real estate is a relatively low-risk investment since the property is pledged as collateral. And because payments are made monthly, investing in mortgages provides a regular stream of income.
TransAlta Corporation’s (TSX:TA)(NYSE:TAC) story hasn’t changed in decades. It’s a well-run power company serving millions of customers. They turn their lights on and you get a dividend. And given that the yield on a 10-year Government note is less than 2%, TransAlta’s payout looks seriously attractive.
Finally, shale oil producer Crescent Point Energy Corp. (TSX:CPG)(NYSE:CPG) is one of the highest yielding stocks in the energy patch. When you look at the company’s properties and the opportunities ahead of it, they should be able to support their dividend with enough funds left over to grow the business and increase reserves.
