Looking for rich dividend yields as a retiree should be a cinch. But it isn’t. There are a few reasons why this might be the case. But before we delve into them let’s review some blue-chip names that are currently packing higher dividend yields.
Some of the richest-yielding stocks on the TSX
Real estate remains a source of rich yields. Foremost of these is Brookfield Property Partners, which packs a suitably rich 11.8% yield. If you’re light on real estate, this could satisfy a range of investing startegies. Covered by a 75% payout ratio, Brookfield’s distribution is well covered with some scope for future payment growth. For a classic REIT play, RioCan currently packs a 9.3% yield, which is also looking increasingly tasty.
Investors seeking access to industrials have a strong play in Russel Metals with its 8% yield. Keyera would suit the midstreamer bull, with its own 7.9% yield. Alternatively, Enbridge offers a wide-moat hydrocarbon play with a 7.4% dividend yield and relatively low-volatility share price performance.
Retirees looking for rich yields will have to weigh their exposure to the insurance industry with care, however. In a few cases, big names in this space have been thoroughly chewed up by this year’s market forces. This has given rise to some rich yields but a weak thesis in terms of capital gains.
Weighing up risk in uncertain times
Technically, that should make this a good time to invest in insurance companies. However, investors may want to time the market and wait for even deeper discounts in this names. Take a look at how Manulife Financial has performed in the last 12 months, for instance. Manulife is down 11% year on year, with a 25% three-month gain that plastered over a disastrous selloff earlier in the year.
Rich yields during a public crisis can be red flags. Look at the share price performance of some of the top-yielding asset types trading on the TSX. Insurance, banks, real estate, energy — all of these are exhibiting some high yields. But the reason behind this is simple. Some companies pay a rich yield because they are highly profitable. Unfortunately, another cause of a rich yield is a tanking share price.
Reliability is also key. Investors need to do a fair amount of homework before committing to long-term income positions. A company’s payment record should be scrutinized, along with its history of dividend hikes. Other metrics include a company’s debt to equity ratio — a key indicator of a company’s health — and its payout ratio. The latter facet of a stock’s data can be used to illustrate dividend reliability as well its potential for growth.
There is a fine line to walk here in terms of risk and reward. On the one hand, an economic recovery could see names such as Great-West Lifeco and Power Corporation of Canada bounce back. On the other, though, the correction in the insurance industry may be at least partially permanent. After all, a “correction” is just that — a return to the correct valuation of an asset type.
