Once in a while, investors find themselves with a bit of extra cash.
The money could be the result of a bonus at work, a gift from a family member, or simply the result of a need to rebalance the investment portfolio after a big gain on one of the positions.
Regardless of the reason, you have to decide where to put the cash.
At the moment, the market is full of beaten-up companies with large distribution yields. Some of these payouts are certainly at risk, but others look sustainable.
If you are willing to take a bit of extra risk with your windfall to squeeze out some additional income, I think Inter Pipeline Ltd. (TSX:IPL) and RioCan Real Estate Investment Trust (TSX:REI.UN) are reasonable picks right now.
Inter Pipeline plays an important role in moving western Canadian oil. The company transports about 15% of the region’s conventional oil output and 35% of oil sands production.
The stock has fallen more than 30% this year on concerns that the rout in the oil patch is going to be prolonged and the capital-expansion cuts will cut off the company’s opportunity for growth.
These are certainly reasonable concerns, but the sell-off looks overdone.
Inter Pipeline has long-term contracts with its clients who are predominantly the big names in the sector. These companies will continue to produce right through the rout, and once the cycle turns, expansion projects will come back on line.
Inter has a large storage business in Europe that is doing well and helps provide support to cash flow. The company is also completing a storage facility in Saskatchewan that will go into service in 2016.
Inter pays a monthly dividend of 12.25 cents per share with a yield of 6%. The payout ratio is 72%, so the distribution should be safe.
RioCan operates about 340 retail properties located in the United States and Canada.
Concerns about a weakening Canadian economy and rising interest rates south of the border have scared money out of the REIT space this year, and that is providing an attractive opportunity to buy RioCan.
The company’s anchor clients are well-established companies that have the means to ride out a slowdown in the economy. Most of them provide essential goods such as groceries, drugs, and items needed to run a household, so there is little risk of a big slide in revenues.
RioCan’s properties are located in prime locations, and the company continues to see strong demand for its space. In Q3 2015 RioCan renewed 1.3 million square feet of retail space at an average rent increase of 8.6%. Funds from operations in the quarter rose by 5% compared with the same period last year.
Rising rates are certainly on the way, but the moves will be small and spread out, so the impact should be easy to manage.
RioCan pays a monthly distribution that yields 5.5%.