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.
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Fool contributor Victoria Hetherington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Enbridge. The Motley Fool recommends Brookfield Property Partners LP and KEYERA CORP.