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2 Big-Dividend Stocks for Income

If you need income, you may be looking for high-yielding stocks. Alaris Royalty Corp. (TSX:AD) and Dream Office Real Estate Investment Trst (TSX:D.UN) yield 7.1% and 9%, respectively. Let’s explore if they’re the kind of businesses you’d like to own and why they offer high yields.

Alaris Royalty

Alaris Royalty offers capital to private businesses that wish to maintain the ownership in their companies. They have a history of generating strong cash flows, and Alaris receives monthly cash distributions from these partners.

Unfortunately, Alaris Royalty has been experiencing problems with one of its streams. The company stopped receiving regular distributions from the stream in November 2014. Alaris Royalty continues to work hard to resolve that issue. This shows that as a part of Alaris Royalty’s inherent risk, any one of its partners could stop paying distributions to it.

Fortunately, Alaris still earns revenue from 15 partners, which offer essential products or services in mature industries and have track records of generating free cash flow. Moreover, Alaris earns 69% of its revenue from the U.S., which should improve the safety of its dividend that’s paid out in the weaker Canadian currency.

Excluding the problem from one of its partners, Alaris Royalty’s payout ratio remains below 80% thanks partly to the strong U.S. dollar. So, for the time being, Alaris Royalty’s 7.1% dividend remains sustainable. Its dividend safety should improve if Alaris Royalty can bring on new partners to further diversify its revenue stream.

Since 2010 Alaris Royalty has hiked its dividend per share at an average rate of almost 10% per year. So far this year Alaris Royalty hasn’t hiked its dividend. However, the company is better off solving its revenue stream issue first and increasing its revenue stream before raising its dividend.

Dream Office REIT

Dream Office owns about 157 office properties totaling 21.5 million square feet across Canada. It earns about 84% of its net operating income (NOI) from key markets such as Calgary (19%), Edmonton (8%), Montreal (5%), the Greater Toronto Area (45% of its NOI), and Ottawa (4%). Dream Office REIT units have been dragged down partly due to its 27% NOI exposure to Alberta.

Dream Office REIT has been transitioning. Since February the REIT has been executing a three-year plan to sell about $1.2 billion of non-core assets as an attempt to narrow the discount between the unit price and its net asset value (NAV) of $23.64 per unit (as of the end of the second quarter).

In February the REIT also cut its distribution by a third. With an adjusted payout ratio of about 77%, Dream Office’s 9% yield should remain sustainable.

Summary

If you need income now, you might consider high-yielding stocks as a part of your strategy. Alaris Royalty and Dream Office REIT offer high yields of 7.1% and 9%, respectively. However, you’re likely taking on above-average risk because they’re experiencing problems of their own.

Alaris Royalty continues to have issues with one of its revenue streams. Dream Office continues to be dragged down by its Albertan portfolio and its attempts to narrow the discount gap from its NAV by selling some of its non-core assets and reducing its debt with some of the proceeds.

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Fool contributor Kay Ng owns shares of ALARIS ROYALTY CORP. and Dream Office Real Estate Investment Trst.

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