Many retirees who depend on the income from their stocks are continuously on the hunt for higher yields to give themselves raises. While chasing yield is a dangerous game which can often lead to massive capital losses and dividend cuts, I believe it’s possible for retirees to safely give themselves a raise from investing in a higher-yielding security, as long as they do their due diligence.
There are plenty of securities with yields north of 9%, but most of them could see their dividends slashed over the medium term, so it’s important to really weigh the potential risks of giving yourself a raise. Most retirees should stay far away from artificially high-yielding securities with yields north of 6%; however, for those who’ve decided that they’re willing to take on more risk to receive a higher yield, there are stocks out there that may make sense to own in moderation.
Consider Corus Entertainment Inc. (TSX:CJR.B) and its massive 9.2% dividend yield. The company is in the media and entertainment business and took a massive ~65% peak-to-trough plunge a few years ago. The stock rallied ~35% from its trough, but it has since taken several steps backwards following its Q4 2017 results.
Revenues came in flat on a year-over-year basis, but the company was able to clock in earnings per share of $0.14, up from $0.00 during the same period last year. The Shaw Media assets acquired last year gave a nice bump to annual sales, but the acquisition caused Corus to raise a considerable amount of debt which needs to be addressed as soon as possible or the dividend may face immense pressure going forward.
The 9.2% dividend yield may seem too good to be true, and it very well may be if Corus continues to show declining sales over the medium term; however, I believe the management team is too shareholder friendly for their own good to cut the dividend, even if it’s the best course of action.
Corus is still going against a major long-term headwind as more consumers cut the cord, but in the near term, the dividend looks to be safe when you consider its free cash flow generation and the shareholder-friendly nature of the company, which probably won’t cut the dividend until absolutely necessary.
If you’re looking for a 9% yield, and you understand the risks involved, Corus is probably one of the safer bets out there. If you’re a retiree, you should realize that Corus is an extremely aggressive income investment, so make sure you don’t bet the farm on it.
Stay smart. Stay hungry. Stay Foolish.