Yield Hogs: These 3 Stocks Have Canada’s Highest Dividends

Can you count on the +10% yields offered by Just Energy Group Inc. (TSX:JE)(NYSE:JE), American Hotel Properties REIT (TSX:HOT.UN), and Chemtrade Logistics Income Fund (TSX:CHE.UN)?

| More on:

Image source: Getty Images.

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Many dividend investors are attracted to high-yield stocks and follow a pretty simple mantra: if dividend stocks are good, then high-yielding dividend stocks must be even better.

There’s just one problem: the reason these payouts are so high is investors have lost confidence in the stability of the dividend. They’re collectively convinced a dividend cut is on the horizon. Sometimes a high-yield stock can turn things around and avoid the dreaded dividend cut. But often the market gets it right and the payout is slashed.

Let’s take a look at three of Canada’s highest-yielding stocks and see if their payouts are safe.

Just Energy

Just Energy Group (TSX:JE)(NYSE:JE) is an energy re-seller that operates across Canada, the United States, and has recently expanded into the United Kingdom, Ireland, Japan, and Germany. It has some 1.6 million customers around the world. The company has focused lately on expanding its market, diversifying into selling things like smart thermostats and water filtration systems.

Just Energy doesn’t appear to generate consistent profits on the surface, posting some pretty major losses three times in the last decade thanks to write-downs taken when energy prices went against it. Cash flow is much more consistent. Through the first three quarters of 2019, the company generated $76.4 million in funds from operations, giving it a dividend-payout ratio under 80%.

But before investors jump up and down and declare the dividend safe, they should know Just Energy has cut the payout in the past. In 2012, the company paid out $1.24 per share in dividends. That number is now $0.50 per share, which still represents a payout of close to 11%. The good news is, this new payout does seem to be sustainable.

American Hotel Properties

American Hotel Properties (TSX:HOT.UN) owns nearly 12,000 guest rooms spread out over 112 different hotels, with assets in 32 different U.S. states. The company has transformed itself from a budget lodger to a diversified operator by making a number of acquisitions since its 2013 IPO.

Unfortunately, results have been somewhat lacklustre lately. As part of its agreement to acquire certain hotels, the company agreed to renovate these assets. This hit both revenue and profits. Adjusted funds from operations fell from US$0.76 per share in 2017 to US$0.65 per share in 2018. This gives the company a 100% payout ratio — something that investors never want to see.

Management is confident results will improve in 2019, since the renovation program is pretty much over. 2019’s expected payout ratio is expected to fall to the 85-90% range. That would be a positive development for the future of the US$0.054 monthly payout.

Even if the payout is inevitably cut, investors are getting a bargain with American Hotel Properties shares today. The stock trades at a discount to book value and at just over eight times adjusted funds from operations. That’s why I bought shares.

Chemtrade Logistics

Chemtrade Logistics Income Fund (TSX:CHE.UN) is a distributor of chemicals like sulphuric acid, sodium chlorate, and sodium nitrate, among others. It’s a fairly boring, predictable business that moves up and down depending on overall industrial demand.

Fellow Fool Ryan Vanzo outlined Chemtrade’s dividend-payment history in a recent article, pointing out that despite the company’s high yield, it has still offered a consistent dividend that hasn’t been cut since the company’s 2001 IPO. The payout hasn’t been increased since 2005 either, but with a 13% yield today, most investors couldn’t care less.

The payout looks to be sustainable as well. Chemtrade generated $1.61 per share in distributable cash in 2018, while paying out $1.20 per unit. If anything, the payout ratio should improve in 2019; there was a lawsuit hanging over the company’s head, which has now mostly been settled.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Nelson Smith owns American Hotel Properties REIT shares. Chemtrade Logistics is a recommendation of Dividend Investor Canada.

More on Dividend Stocks

edit Back view of hugging couple standing with real estate agent in front of house for sale
Dividend Stocks

Why Real Estate Stocks Are a No-Brainer Addition to Your Portfolio

Real estate stocks, especially REITs, offer some distinct advantages over other types of stocks, making them must-have additions to most…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

3 Top TSX Dividend Stocks to Buy for Monthly Passive Income

Top TSX stocks with monthly dividends now trade at cheap prices for investors seeking passive income.

Read more »

Canadian Dollars
Dividend Stocks

Create Free Passive Income and Turn it Into Thousands With 1 TSX Stock

If you can't afford to invest, you can certainly create passive income another way and use that to invest in…

Read more »

Payday ringed on a calendar
Dividend Stocks

Canadian Dividend Investors: 2 ETFs That Pay Monthly Income With High Yields

Dividend ETFs often pay out monthly distributions compared to dividend stocks.

Read more »

think thought consider
Dividend Stocks

2 Stocks I Own and Will Buy More of if They Fall

Stocks tend to go up in the long run. Therefore, buying a basket of diversified stocks on dips should lead…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

2 Oversold TSX Dividend Stocks to Buy for Passive Income

Blue-chip dividend stocks such as Royal Bank of Canada and Manulife Financial pay investors a tasty forward yield.

Read more »

TFSA and coins
Dividend Stocks

TFSA Passive Income: 3 Solid Stocks to Earn $355 Every Month

Looking to earn steady passive income? Here are three solid TSX stocks that can help you earn a worry-free passive…

Read more »

Technology
Dividend Stocks

RRSP Investors: 2 Stocks to Buy in August for Dividends and Capital Gains

RRSP investors can still find top TSX dividend stocks trading at cheap prices today for a buy-and-hold portfolio.

Read more »