Canadian pensioners used to count on savings accounts and GICs to provide additional retirement income.
Unfortunately, interest rates plunged in the wake of the Great Recession, and six years later the situation doesn’t look like it will reverse anytime soon.
As a result, seniors looking to get decent yield on their savings are turning to dividend stocks to help them meet their cash flow goals.
Let’s take a look at Inter Pipeline Ltd. (TSX:IPL) and A&W Revenue Royalties Income Fund (TSX:AW.UN) to see why they might be interesting picks.
Inter Pipeline’s diversified revenue stream has enabled the company to navigate the energy storm very well, and management is taking advantage of the difficult times to invest for future growth.
The company operates oil sands infrastructure, conventional oil pipelines, natural gas liquids (NGL) extraction facilities, and a Europe-based liquids storage business. Despite ongoing challenges in the broader energy sector, all four of the core segments generated positive year-over-year Q2 funds from operations (FFO) growth.
Inter Pipeline believes better days are on the horizon and recently purchased two additional NGL extraction plants and related infrastructure from The Williams Companies for $1.35 billion. The deal is at a significant discount to the construction cost of the assets and sets Inter Pipeline up well for some strong returns once the market recovers.
Inter Pipeline raised its monthly dividend last November, and investors could see another hike when the new assets are integrated into the portfolio.
The current payout yields 5.5%.
Canadians have enjoyed A&W’s burgers and famous root beer for decades, and the company continues to bring in new customers despite strong competition in the fast-food space.
What’s the secret to the ongoing success?
A&W’s latest marketing program highlights the quality of the company’s ingredients: beef raised without hormones and chicken raised without the use of antibiotics. It must have taken some real guts to give this campaign pitch the green light, but the strategy is hitting a chord with Canadians who are becoming more concerned about the origins of the food they eat.
In order to reach more consumers and satisfy growing demand, A&W is adding new restaurants. The company has 858 stores in the royalty pool and another 23 are on the way.
Same-store sales for Q2 2016 came in 2.7% higher than the same time last year and rose 5.4% for the first six months.
The company recently raised the monthly distribution to $0.133 per unit. That gives you a 4.6% yield at the current price.
Is one a better bet?
Both companies offer growing payouts that should be safe.
I would lean toward Inter Pipeline as my first pick. The company offers a better yield, and investors could see some decent upside in the stock price when the energy sector recovers.