Any dividend stock can technically become a “high-yield” stock if it falls hard enough. But not all high-yield dividend stocks fall into that category. There are few companies that raise their dividends to a level that, even with a healthy valuation, their yield remains quite attractively high.
However, it doesn’t mean that one is risky by default and the other is a safe bet. And the best way to ensure that the dividend stocks you are building your passive-income stream with are sustainable is to look into the financials of the company paying the dividends.
But financials alone might not paint the full dividend picture as well. A dividend payer’s dividend history should also be considered a crucial variable when choosing dividend stocks for your income.
An energy aristocrat
The energy sector has a lot of healthy or, more accurately, stubborn dividend companies that sustain their payouts even when the headwinds are blowing and destabilizing the companies. One example would be Pembina Pipeline (TSX:PPL)(NYSE:PBA), the $21.6 billion market cap energy company that has been raising its payouts for nine consecutive years.
Currently, the company is offering a mouthwatering 6.4% yield, a virtue of its heavily discounted price tag. The company is still trading at over a 25% discount to its pre-pandemic valuation, and the way the stock is moving right now, it seems that it has found its new “normal” pace. Even before the pandemic, Pembina was a slow but steady grower. After the crash, the stock recovered and is recovering but at a relatively measured pace.
But Pembina’s main attraction was and still is its dividends. And if you evaluate its dividends financially, using the payout ratio, the current 155% may surprise you. But the aristocrat has sustained its payouts for many years with a ratio of over 100%, and it’s unlikely to shift its dividend strategy now.
A commercial REIT
When it comes to capital appreciation and growth, PRO Real Estate Investment Trust’s (TSX:PRV.UN) performance in the last five years has been quite similar to Pembina’s, albeit even slower. In the three years preceding the 2020 crash, the stock only grew a bit over 20%. And during the crash, it fell about 58%, which is quite a dip for a REIT.
The recovery, while not yet full, is mostly done. The stock is currently trading at a 14% discount from its pre-pandemic peak, which is partly the reason for its incredible 6.7% dividend yield. At this rate, it can offer you about $100 a month with about $18,000 invested.
The REIT has an industrial-heavy commercial portfolio, where industrial properties make up about two-thirds of the total mix. The rest are office and retail properties. The base rent mix, however, is quite different.
Foolish takeaway
The two companies offer healthy and relatively reliable dividends, which allows you to hold them for years, even decades. And thanks to their high yields, the two great dividend stocks can contribute significantly to your income-producing portfolio.
