When constructing a TFSA income stream, it’s not all about yield. It’s about the quality of the dividend, the realistic growth expectations over the next 5, 10, and 20 years, the shareholder friendliness of management, and whether or not there are any catches that come with the above-average yield that has you intrigued. Like most things in life, if it’s too good to be true, it probably is. Sorry to sound pessimistic, but there are usually strings attached to things you see as an opportunity to get a free lunch. That means many extremely-high-yielders require extra due diligence, as…
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When constructing a TFSA income stream, it’s not all about yield. It’s about the quality of the dividend, the realistic growth expectations over the next 5, 10, and 20 years, the shareholder friendliness of management, and whether or not there are any catches that come with the above-average yield that has you intrigued.
Like most things in life, if it’s too good to be true, it probably is. Sorry to sound pessimistic, but there are usually strings attached to things you see as an opportunity to get a free lunch. That means many extremely-high-yielders require extra due diligence, as many artificially high yielders — yields that have grown only due to a decline in a stock’s price — could be siren songs that lead yield hunters into serious trouble.
That doesn’t mean all 8% yielders are a trap, however. Investors need to find out the reasons why a stock has a yield that’s much higher than average. If the reason is because of a deteriorating stock price, investors need to proceed with caution and carefully analyze the balance sheet to determine whether the company and the dividend are in sound financial health.
In short, a lot of homework is needed if you want to give yourself a raise. And after you’ve finished doing the homework, you need conviction in your long-term thesis so you can avoid that dreaded dividend cut that so many high-yielding firms have been guilty of. That means putting in the effort to gain better visibility into a company’s longer-term future. While the distant future is clouded with uncertainty, investors can gain major insight from firms within industries that are on the right side of secular generational transitions.
Consider NorthWest Health Properties REIT (TSX:NWH.UN), a 7.32% yielder that’s down 20% from its 2013 all-time high. Since bottoming out in mid-2015, the NorthWest shares have been on an absolute tear. The company has taken on a bit more leverage than your average REIT, which while alarming on the surface may be more benign in actuality.
NorthWest is slated to enjoy a massive multi-year tailwind as the ageing Baby Boomer cohort drives demand for health-related expenses. With age comes more illness, and that means more visits to the hospitals, clinics, doctor’s offices, and the like.
As you may have guessed, NorthWest owns and operates a portfolio of healthcare properties. As a global player in the health real estate scene, the trust owns properties that span several promising geographies.
Fellow Fool contributor Karen Thomas recently shed light on the fact that such healthcare properties have stable occupancies and very long lease terms, touting NorthWest’s impressive 96.3% occupancy rate as a primary reason why the REIT was a good pick up for income investors at the time.
To take it one step further, this occupancy rate can only be expected to increase as NorthWest continues to grow its book of properties through M&A to better meet the rising demands in the global healthcare scene.
You don’t need a crystal ball to better forecast the stability, growth potential, and health of a bountiful dividend. If you can spot secular tailwinds, and evidence of exceptional stewardship, you could have a major winner on your hands as in the case of NorthWest.
NorthWest is in the right real estate sub-industry at the right time. So, if you’re looking for significant monthly income and capital gains over the long term, I’d highly suggest you check out NorthWest.
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Fool contributor Joey Frenette has no position in any of the stocks mentioned.