When you’re close to retirement, and you don’t have enough savings to count on a safe withdrawal rate, an investor must take drastic steps. It’s time to stretch for yield.
Canada is filled with monthly-paying dividend stocks that yield 6%, 8%, and sometimes even more than 10%.
These stocks come with risks, of course. Many high-yield stocks end up cutting their generous payouts after something unexpected hits earnings. But at the same time, investors can successfully diversify away some of this risk by owning a couple dozen names. That way, one or two dividend cuts are very manageable.
If your portfolio needs a little more yield, you won’t want to miss this. Here are three stocks that offer huge monthly payouts along with distributions that look pretty darn safe.
Slate Retail REIT
Let’s start things off with Slate Retail REIT (TSX:SRT.UN) and its generous 9% payout.
This part of the Slate group of companies — the same folks are behind an office REIT as well — owns grocery-anchored real estate in what it calls “secondary” U.S. cities. This includes locations in places like Charlotte, Minneapolis, and Atlanta. The total portfolio spans nearly 90 properties and more than 10 million square feet of gross leasable area.
This focus has a number of advantages. Grocery stores are perhaps best positioned to compete against online retailers. Supermarkets are consistent businesses that don’t close very often. They also complement other tenants by commanding lots of regular foot traffic. And there are hundreds of potential acquisition opportunities across the U.S.
The distribution sure looks sustainable, too. Not only has the company raised its dividend each year since its 2015 IPO, but the payout ratio has remained at approximately 70% of funds from operations. That’s exactly what high-yield investors should be looking for.
Diversified Royalty (TSX:DIV) is the owner of some of Canada’s better-known brands, acquiring the rights to Mr. Lube, Sutton Real Estate, Air Miles, and, most recently, Mr. Mike’s restaurants. Diversified Royalty is set up so investors get paid predictable dividends direct from the revenue of each of these companies.
For many investors, Diversified Royalty has become a wait-and-see stock. Even after making its latest acquisition, the company is sitting on a large cash balance of close to 15% of its market cap. Investors are hoping that cash gets put to use effectively, but there are numerous competitors out there looking to make similar deals.
Unfortunately, until the company makes another acquisition, it’s paying out more than it earns. Through the first six months of 2019, the company earned $0.10 per share in distributable cash flow. It paid out dividends of $0.11 per share, giving us a payout ratio in the 110% range. The good news is, it has the cash available to continue this over-payment indefinitely, which bodes well for the 7.8% yield. But ultimately, it will need to make another acquisition.
Chorus Aviation (TSX:CHR) consists of two separate parts. The first operates regional flights for Air Canada, which delivers plenty of consistent profits. The second is much more exciting: the company has a rapidly growing aircraft-leasing business that has quickly grown to more than 50 aircraft that are collectively worth US$1 billion.
Travel is poised to become a huge trend over the next 20 or so years, and Chorus is perfectly positioned to take advantage of this by providing much-needed financing to some of the world’s smaller regional airlines. This will allow these businesses to expand at a much faster rate. Currently, Chorus has leased planes to airlines in Africa, South America, and Asia. It also signed an agreement to lease planes to Air Canada as part of the two companies’ long-term partnership.
Chorus pays investors a generous $0.04-per-share monthly dividend, which is good enough for a 6.4% yield. It has easily earned enough to cover the dividend thus far in 2019. The payout has also been increased periodically over the years, since the company converted from an income trust to a corporation, including a hike in 2015.
The bottom line
Slate Retail REIT, Diversified Royalty, and Chorus Aviation are all poised to deliver very generous dividends for years to come. A portfolio with just these three names would yield an impressive 7.7%. That sure beats GIC rates at your local bank.