MENU

Income Investors: 2 Dividend-Growth Stocks Yielding 5-7%

Income investors are always searching for stocks that pay reliable, above-average distributions.

Let’s take a look at Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) and Inter Pipeline Ltd. (TSX:IPL) to see why they might be interesting picks.

CIBC

CIBC is trading at a discount to its larger peers.

Why?

Investors are concerned the company’s heavy exposure to the Canadian housing market puts it at an elevated risk.

It’s true that a total meltdown in house prices would be bad news, but most pundits expect a gradual decline in the housing market, and CIBC is more than capable of riding out a rough patch. The company is well capitalized, and the loan-to-value ratio on the uninsured mortgages is low enough that things would have to get really bad before the company takes a material hit.

How bad?

Last year, CIBC said a 30% drop in house prices and an 11% unemployment rate would result in mortgage losses of less than $100 million. That’s not much considering the total mortgage and HELOC loan book tops $200 billion.

In addition, CIBC made two recent acquisitions in the United States that should help balance out the revenue stream in the coming years.

Management just raised the quarterly dividend by $0.03 to $1.30 per share, so the company can’t be overly concerned about the revenue or earnings outlook.

At the time of writing, the stock provides a yield of 5%.

IPL

IPL owns natural gas liquids (NGL) extraction assets, oil sands pipelines, conventional oil pipelines, and a liquids storage business in Europe.

The company has navigated through the oil rout in good shape, and management has taken advantage of the downturn to pick up strategic assets at attractive prices. When the market recovers, these investments should generate decent returns.

IPL has $3 billion in development projects under consideration that should be completed in the next few years and provide a nice boost to revenue and cash flow.

In the meantime, the company reported a Q2 2017 payout ratio of 72.9%, so the current distribution should be safe. IPL has raised the payout in each of the past three years, which shows the strength of the business, despite the tough times in the sector.

The stock is down this year amid the broader sell-off in the energy segment. At this point, the pullback might be a bit overdone. Investors who buy now can pick up a yield of 7%.

Is one more attractive?

Both stocks are starting to look oversold, and the distributions should be safe.

If you have a contrarian investing style and don’t mind some ongoing volatility, it might be of interest to split a new investment between the two companies to get average yield of 6%.

1 Massive Dividend Stock to Buy Today (7.8% Yield!) - The Dividend Giveaway

The Motley Fool Canada's top dividend expert and lead adviser of Dividend Investor Canada, Bryan White, recently released a premium "buy report" on a dividend giant he thinks everyone should own. Not only that - but he's created a must-have, exclusive report that outlines all the alarming traits of dividend stocks that are about to blow up - and how you can avoid them.

For this limited time only, we're not only taking 57% off Dividend Investor Canada, but we're offering you special access to two brand-new reports, free of charge upon signing up. They will outline everything you need to know so you steer clear of dividend burn-outs AND take advantage of the dividend giants in the Canadian market.

While this offer is still available, you can find out how to get a copy of these brand-new reports by simply clicking here.

Fool contributor Andrew Walker has no position in any stock mentioned.

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.