Many companies had to slash their dividends or cut the payouts in 2020. The move was necessary to preserve capital and protect the balance sheet. However, it negatively impacts dividend investors whose primary objective is to increase their stock investing profits.
But with inflation rising at a rapid pace, a modest dividend won’t cut it for some income investors. Dividends matter now to preserve purchasing power. On the TSX, Great-West Lifeco (TSX:GWO), TC Energy (TSX:TRP)(NYSE:TRP), and MCAN Mortgage (TSX:MKP) are the best buys for yield-thirsty investors.
Timely dividend hike
Great-West Lifeco broke its customary practice of waiting until the Q1 cycle to increase dividends. On November 3, 2021, management announced a 12% dividend hike effective December this year. The company also said the target dividend-payout ratio range for future decisions would be between 45% to 55% of base earnings.
Paul Mahon, president and CEO, Great-West Lifeco, said, “This new target dividend payout range supports our balanced approach to progressive dividend increases in line with expected earnings growth while maintaining financial strength.” He added that after deploying significant capital to strategic transactions over the last 18 months, Great-West Lifeco is well positioned for continued growth and resilience.
The $35.3 billion international financial services holding company currently pays a 5.17% dividend. At $37.94 per share, the insurance stock is up nearly 30% year to date. As of September 30, 2021, Great-West’s consolidated assets under administration (AUM) is $2.2 trillion.
Yearly dividend increase
TC Energy is popular with income investors. You don’t need to wait for an announcement, because the Dividend Aristocrat has been increasing dividends every year since 2003. The share price is $60.23 (+21.43% year to date), while the yield is 5.78% if you invest today.
On November 10, 2021, the $59.09 billion pipeline operator announced a partnership with a leading supplier of hydrogen-powered fuel cell electric vehicles. TC Energy and Hyzon Motors will develop, construct, operate, and own hydrogen production facilities across North America.
Corey Hessen, TC Energy’s senior vice president, said, “TC Energy is committed to exploring and developing energy solutions in North America for our own assets as well as those of customers to meet their energy transition needs.” Apart from operating the hubs, TC Energy will supply the power and gas commodities and provide asset development and management services, among others.
Extra-generous MIC
MCAN Mortgage pays a fantastic 7.35% dividend. As a mortgage insurance corporation (MIC), the $511.73 million company can be extra generous. It can deduct dividend payments from taxable income. A $30,000 investment in this MIC ($18.51 per share) will produce $551.25 in quarterly passive income.
According to Karen Weaver, MCAN’s president and CEO, mortgage originations remain strong, and the portfolio is growing due to the very low interest rates. In the nine months ended September 30, 2021, net income rose 132% to $48.3 million versus the same period in 2020.
It remains to be seen whether MCAN can sustain the high payouts when borrowing costs increase in 2022. While the focus is to returning cash flows to shareholders, a dividend cut is possible if earnings aren’t enough.
Effective strategy
Dividend investing is an effective strategy to overcome reduced purchasing power due to inflation. Moreover, dividends are financial cushions when stock prices are declining.
