Canada’s dividend darlings are being decimated on a daily basis and that is causing grief for investors who rely on the distributions to top up their pension income.
The energy space used to be considered a safe place to park some money and collect a fat yield. Aside from a handful of well-run giants, that bet is pretty much off the table now.
More than ever, retirees have to be especially careful where they invest for dividend income.
With that thought in mind, I think Fortis Inc. (TSX:FTS) and Potash Corp./Saskatchewan Inc. (TSX:POT) (NYSE:POT) are good choices right now.
Fortis Inc.
Fortis runs electricity generation and natural gas distribution facilities in Canada, the U.S., and the Caribbean. Income investors like this company because 93% of the revenue comes from regulated assets. This means the cash flow stream is both reliable and predictable.
The company recently reported strong adjusted Q2 2015 earnings of $0.44 per share. That was a 47% increase over the same period last year. The income growth is being driven by solid contributions from new revenue streams, including the expansion of a hydroelectric facility in British Columbia.
Management is always looking for ways to boost returns. The company recently took advantage of a strong market for commercial property and sold its portfolio of hotels.
Fortis pays a dividend of $1.36 per share that yields 3.6%. The company has increased the payout every year for the past four decades and investors should see the trend continue.
Potash Corp.
You might think a commodity producer isn’t the best choice in the current environment, but Potash Corp. is a special beast.
The company produces the crop nutrients global farmers need to improve yields. Last year potash demand hit a record 61 million tonnes and the outlook for the next 35 years is pretty good.
The planet currently has seven billion human mouths to feed. That number is expected to rise to 11 billion by 2050. As the demand for food increases, arable land continues to fall victim to urban development. That might not be good news for consumers, but it is great for Potash Corp. and its shareholders.
Potash Corp. is completing a multi-billion dollar expansion program. As the new facilities switch from development to production, investors should see a windfall of free cash flow available for distributions and share buybacks.
Potash Corp. currently pays a dividend of US$1.52 per share that yields 5.4%. The company recently increased the payout by 9%, and investors should see annual gains going forward. The recent pullback in the stock gives investors a great opportunity to pick up the shares at a very reasonable price.
