Dividend Investors: 2 of the Best High-Yielding Finance Companies

If you are looking for passive income, the two top stocks to consider today are Alaris Royalty Corp (TSX:AD) and Chesswood Group LTD (TSX:CHW).

| More on:
edit Person using calculator next to charts and graphs

Image source: Getty Images.

Companies that have been lending to other small businesses have had one of the top business models the last few years.

Lending or investing in small businesses can be extremely profitable but can also come with a lot of risk. If you can manage the risk well, though, and have a solid investment philosophy, the returns that are available can be extremely rewarding.

The risk that is always present will be exacerbated as we edge closer to a recession, but if the companies are strong operators, with a history of disciplined investment and loan originations, the risk will be reduced considerably.

On top of that, these companies provide passive income, so a lot of the cash flow will be stable and naturally help to protect your investment.

Two of the top companies to watch in Canada that have exposure to small businesses across North America and are great passive-income generators are Alaris Royalty (TSX:AD) and Chesswood Group (TSX:CHW).

Chesswood Group

Chesswood is engaged in the small-business lending industry. Through its subsidiary companies, it gives business loans and equipment financing to small- and medium-sized businesses across North America.

Chesswood’s primary goal is to provide shareholders with a solid passive-income stream, paying out the majority of the returns it makes.

The company has stated its awareness that the industry it operates in is in the later stages of its cycle. It believes, though, that with its continued disciplined and strategic approach, it can continue to improve its position in the industry, regardless of the environment.

Free cash flow, the measure which the company believes best represents the company’s performance, is slightly down through the first three quarters of the year compared to last year; however, this was due to start-up costs from its Tandem Finance company.

Besides that, the company is positioned the best it can be and will continue to protect shareholder capital going forward.

Its dividend yields more than 8%, and its price-to-earnings ratio is less than 10 times, making it extremely attractive.

Alaris Royalty

Alaris has long been a top stock on the TSX, especially for passive-income seekers. It’s a Dividend Aristocrat and pays an exceptional dividend that yields roughly 7.5%.

Alaris is one of the best at allocating and investing capital in many small businesses, mostly across the United States.

Many of its companies pay it a monthly distribution; however, it offers flexibility to the businesses it works with to create an investment plan that suits the needs of its clients.

Regardless of the structure of each deal, it has a tremendous track record for finding high-quality companies and generating massive returns on the capital it invests.

Furthermore, it has an efficient organizational structure that gives it extremely low overheard and allows it to earn ridiculously high operating margins.

What’s also attractive about Alaris’s business is that companies will always need funds, so it has a strong and consistent pipeline of deals to consider, giving it potential for growth well into the future.

The dividend  yields an attractive 7.5%, has a payout ratio of just 84%, and has been increased 11 times since 2010.

Alaris is a great stock that’s been rangebound for the last few years but finally looks as though it’s about to break through resistance, as it trades at its 52-week high.

Bottom line

Both companies are well-run and offer investors solid dividends that are highly sustainable, especially given their high-yield nature.

Although there is some risk creeping into the market and the loan industry as a whole, these stocks have tremendous risk management, and will protect your capital as well as any other company on the market.

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 Daniel Da Costa has no position in any of the stocks mentioned. The Motley Fool recommends ALARIS ROYALTY CORP. and CHESSWOOD GROUP LIMITED.

More on Dividend Stocks

Specialty Brands faces higher raw materials costs.
Dividend Stocks

What’s Next for Premium Brands Stock?

Shares of the specialty food production and distribution company have fallen about 25% since last October.

Read more »

Double exposure of a businessman and stairs - Business Success Concept
Dividend Stocks

2 Interesting Buys in Any Market

Here are two intriguing buys in any market climate that offer defensive appeal as well as growth and income earning…

Read more »

IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT
Dividend Stocks

TFSA Investors: 3 TSX Stocks for Tax-Free Passive Income

These Canadian corporations have strong visibility over future earnings and dividend payouts.

Read more »

Simple life style relaxation with Asian working business woman healthy lifestyle take it easy resting in comfort hotel or home living room having free time with peace of mind and self health balance
Dividend Stocks

Lazy Landlords: 3 Cheap Canadian REITs to Buy in May 2022

You can become a passive landlord today by investing in Canadian REITs. Here are three cheap REITs to consider this…

Read more »

Target. Stand out from the crowd
Dividend Stocks

4 High-Yield TSX Stocks to Buy Ahead of Their Ex-Dividend Dates

If you have some cash lying idle, consider these high-yielding TSX stocks.

Read more »

growing plant shoots on stacked coins
Dividend Stocks

Passive Income: 3 TSX Stocks With Rapidly Growing Dividends

Worried about inflation? Here are three passive-income stocks to buy that pay rapidly growing dividends.

Read more »

Family relationship with bond and care
Dividend Stocks

Retirees: 4 Safe Stocks to Buy for Decent Passive Income

Retirees can offset the impact of runaway inflation by buying safe dividend stocks to create more cash flows.

Read more »

Canadian energy stocks are rising with oil prices
Dividend Stocks

3 Canadian Energy Stocks to Buy for Reliable Passive Income

Canadian energy stocks are gushing cash. Here's three top stocks that are perfect buys for reliable passive income.

Read more »