If you want to have an income from your investments, there’s a much better place to look at than bonds. The TSX is packed with stocks that have strikingly high dividend yields right now.
You can find stocks with dividend yields over 6% on the TSX
Among the stocks that have high dividend yields, we find many quality stocks. For instance, both Capital Power and Power Corp. of Canada have dividend yields of about 6.5%. BCE has a yield of 6%. Enbridge’s (TSX: ENB)(NYSE: ENB) dividend yield is 8.2%, and RioCan Real Estate Investment Trust has a yield close to 9%.
While the prices of these stocks have fallen due to the coronavirus pandemic, their dividend yields are appealing, considering today’s environment of ultra-low yields on guaranteed investment certificates (GICs) and government bonds.
“High-yielding sectors such as banks, insurers, communications, and utilities appear to be pricing in the worst for the impact of the virus, but little of the appeal of their yields in an extremely low-interest rate environment,” Ian de Verteuil, a strategist at CIBC World Markets, said in a note.
Some might argue that it’s better to invest in GICs and government bonds as they are ultra-safe, while high dividend yields may be at risk of stagnation, cuts, and outright suspensions due to the uncertain economy and lingering pandemic.
Indeed, dividend yields are higher, because stock prices have fallen (a dividend yield compares a stock’s annual payout to its price). The S&P/TSX Composite High Dividend Index, composed of 50-75 stocks that were selected because of their impressive dividend income, has fallen 16.4% over the past year.
The broader S&P/TSX Composite Index has fallen just 2.4% over the same period. The TSX has a dividend yield that is about four times higher than the yield of 10-year Government of Canada bonds, which is among the widest spread for data going back more than three decades. The 10-year bond has a yield of just 0.75% right now, after starting the year at about 1.7%, according to data from the Bank of Canada. In contrast, the TSX is yielding about 3%.
Enbridge is a high-yield stock worth considering
Dividend stocks are yielding more than GICs, too. Consider that locking $10,000 into a GIC at just 1% will generate just $100 per year.
But buying 100 shares in Enbridge, which pays a dividend of $0.81 per share (and yielding 8.2%), for about $10,000 will generate $820 per year. Enbridge has paid dividends for over 65 years to its shareholders and has increased it for the last 25 years.
In December 2019, Enbridge announced a 9.8% increase in its dividend per share, bringing the quarterly dividend to $0.810 per share. This translates to a dividend of $3.24 per share on an annualized basis for 2020. Over the past 25 years, the dividend has grown at an average compound annual growth rate of 11%.
Enbridge’s net profit increased by 4% to $990 million, or $0.49 per share, in its third quarter, despite a decrease in demand for oil in North America due to the pandemic. Enbridge stock has rebounded sharply in the past few days but is still down more than 20% year to date. It’s time to buy some shares while they are still cheap.
