TFSA Users: 2 High-Yield Dividend Stocks to Buy and 1 to Sell

When all the uncertainties, TFSA users have to be more cautious with investment choices. Pembina stock and Capital Power stock are better options over Cineplex stock.

Christopher Liew, CFA

Christopher is a CFA Charterholder and a former financial advisor at RBC.

Published November 6, 2019 1:00 pm EST

The heightened market volatility should compel TFSA investors to re-balance stock portfolios and be on the safe side. Pembina (TSX: PPL)(NYSE: PBA), Capital Power (TSX: CPX), and Cineplex (TSX: CGX) are all high-yield dividend stocks.

But if you were to buy only two and discard one, I would include Pembina and Capital Power in your TFSA and remove Cineplex.

Recession resistant

Pembina is displaying resiliency amid the headwinds in the energy sector. The stock’s gain thus far this year is 18.87%, and if a recession comes tomorrow, the company is prepared to meet it head on.

This $23.66 billion oil and gas midstream company is for investors with low-risk investing appetites. Pembina has shown in the past its capability to endure market crashes. Besides, it is common for energy companies to go through ups and downs, depending on oil price movements.

In the case of Pembina, you need to look at the nature of the business. The company moves the all-important natural gas and petroleum products in Canada and the U.S. Its principal clients utilize Pembina’s pipeline, which stretches for 10,000 kilometres across Alberta and British Columbia.

In spite of the uncertainties, analysts covering Pembina are maintaining a buy rating. Based on their forecasts, the energy stock can soar by 34% from its current price of $46.24. But what is more cherished is the 5.18% dividend, which is safe and sustainable for years to come.

Stability

Capital Power is not a preferred stock because of its generous 6% yield. When it comes to this $3.36 billion company, you’re after its business performance in the face of a recession.

The company has been in existence since 1891. It has grown to become a respected owner and operator of power-generation facilities in Canada and the U.S. Capital Power has also gone a long way from its legacy of generating electricity from coal-powered plants.

With the rising demand for clean and green energy, Capital Power successfully made the transition. Although it can still produce electricity from coal, the company is concentrating more energy sources with less harmful effects on the environment.

Since the business of Capital Power is regulated, the company continues to generate increasing, stable cash flows. The company expects to end 2019 with a 21.7% growth and realize a 16.4% increase in 2020.

Slowing business

Cineplex is a dividend monster whose business is straight forward and easy to understand. Investors, regardless of generation, love the stock for its very juicy 8% dividend. However, the industry of this $1.4 billion entertainment and media company could be facing rough times with the incoming recession.

It’s not every day that a recession comes, but when it does, people tend to lessen recreation and leisure spending. So far, in 2019, Cineplex is down 6% year to date. While this top-tier Canadian brand was able to endure the 2008 financial crisis, video streaming companies like Netflix are taking customers away.

Even if Cineplex is a Dividend Aristocrat, it might be challenging to maintain the status if business slows down in the coming years. The company is on track to maintain its 2018 revenue, but income could drop by 35% in 2019. More so, the business could further weaken in 2020.