Telus (TSX:T)(NYSE:TU) provides investors with a strong and consistent dividend. At 4.6%, the stock pays a very good payout, much better than you’d get with a stock from the S&P 500, which averages just 1.85%. However, for investors who want to maximize their dividend income, there are higher-yielding stocks out there. If you’re willing to take on a bit more risk, the rewards could be much more significant.
While yields of 10% or more are likely too risky for even the most aggressive of dividend investors, finding a payout between 6% and 8% may offer a bit of a sweet spot. And speaking of sweet, the one stock that could offer that is Rogers Sugar (TSX:RSI). The stock pays a modest quarterly dividend of $0.09. However, given the stock’s low price point, that comes out to a dividend yield of about 7.5%. One question that investors are likely immediately asking.
Is that dividend safe?
Rogers Sugar is coming off a disappointing quarter where it incurred a hefty loss of $40 million, and so questions about Rogers Sugar being able to sustain its dividend payments are valid. That big drop in earnings came as the company recorded a goodwill impairment charge of $50 million on its maple product segment. The positive takeaway, however, is that in each of the past four quarters, the company’s operating income has remained positive, ranging between $15 million and $23 million.
Another good sign is that the company is still generating positive free cash flow, with Rogers Sugar accumulating $30.8 million over the past 12 months. However, there is a danger that if things don’t improve that a dividend cut could be a possibility. For now, however, management has not suggested that is a likelihood at this point.
Are dividend investors better off with Rogers Sugar or Telus?
From a risk standpoint, Telus is a more stable investment over the long term. With a market cap of $30 billion for the telecom giant compared to just $500 million for the sugar company, Telus is certainly the bigger of the two and has greater resources to handle any adversity that may come its way. There also isn’t a movement to reduce internet consumption the way there is to cut out sugar from people’s diets.
Telus is definitively the better buy-and-hold investment today that investors can just put in their portfolios and forget about. Rogers Sugar does not fall into that category, but that doesn’t mean that it can’t be a good stock to hold, at least over the short term, anyway. If management at Rogers Sugar has evaluated their forecasts for the coming year and they don’t see a need for a dividend cut, then one may not be coming this year, unless there’s an unwanted surprise along the way.
For the short term, however, dividend investors may be able to take advantage of the 15% decline the stock has gone on over the past six months and lock in a high yield. Trading not far from its 52-week low, Rogers Sugar could also provide more potential for capital appreciation if it can bounce back with some better results in 2020. As long as you’re willing to keep close tabs on it, Rogers Sugar could be the better dividend stock to buy today.
