Investing in high yield dividend stocks when markets are close to record highs seems like a good bet. Income stocks are a safe haven in a downturn as they provide a steady stream of income. Here we look at two high dividend-paying stocks for Canadian investors.
Inter Pipeline (TSX:IPL) is a Canada-based petroleum transportation, storage, and natural gas liquids processing business. In 2018, the company generated 83.7% of sales from Canada followed by 8.5% in the United States and 7.6% in Europe.
The stock is currently trading at $22.3 at writing. With an annual dividend of $1.71 per share, the Inter Pipeline’s dividend yield stands at a healthy 7.6%. The stock gained less than 20% in 2019 but is trading 12.3% below its 52-week high.
IPL has managed to grow sales from $1.4 billion in 2014 to $2.6 billion in 2018. However, sales are estimated to fall 3.6% to $2.5 billion in 2019 and 0.4% to $2.49 billion in 2020.
IPL will be banking on the Heartland Petrochemical Complex (HPC) that will be completed by the end of 2021 to drive sales higher. HPC is an integrated plant that converts propane into polypropylene plastic which is a high margin product.
IPL has invested around $3.5 billion in this project and HPC is expected to add close to $500 million to annual cash flow once it is fully operational. An increase in cash flow will help the company stabilize cash outflow. IPL has a payout ratio of 118.6% which is not sustainable in the long term., especially considering its debt balance of $6.5 billion.
Investing $10,000 in this stock will result in annual dividend payments of $760.
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Alaris Royalty Corp.
Alaris Royalty Corp. (TSX:AD) is a Canada-based financial service and investment company. It provides capital to private businesses via preferred limited partnership interests or long-term license or royalty contracts. It invests in steady growth companies and generates 100% of sales from Canada.
The stock is currently trading at $22.33 at writing. With an annual dividend payment of $1.65 per share, the company’s dividend yield stands at 7.4%. The stock has lost 35% in market value since April 2015, but has returned 24% in the last 12-months. Investing $10,000 in this stock will result in annual dividend payments of $740.
Alaris Royalty is valued at $826.5 million in terms of the market cap, while its enterprise value stands at $1.16 billion. The company’s stock decline since 2015 was driven by a fall in revenue.
Alaris sales fell from $128 million in 2016 to $89.1 million in 2017 and $100 million in 2018. Analysts expect sales to touch $117 million in 2019, $123 million in 2020 and $131 million in 2021.
The stock is trading at a forward price to earnings multiple of 12.3. Comparatively, its five-year earnings growth is estimated at 8%. We can see that Alaris stock is reasonably valued and can move higher in 2020 after accounting for its robust dividend yield.
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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.
The Motley Fool recommends ALARIS ROYALTY CORP. Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. Alaris Royalty Corp. is a recommendation of Dividend Investor Canada.