The Bank of Canada raised its key interest rate last week, the first hike since 2018. According to Governor Tim Macklem, the move was necessary to cool demand-driven inflation. However, a tighter monetary policy will impact borrowers.
Macklem said, “The impact of raising our policy rate will be higher interest rates for Canadian households and businesses, including many mortgage and prime lending rates, but also rates for savings products.” He further adds, “The economy is now in a place where moving to a more normal setting for interest rates is appropriate.”
Canada’s inflation rate of 5.1% in January 2022 was well above the central bank’s target. The BoC is committed to bring down inflation to the 2% and keeping inflation expectations well anchored, Macklem said. Meanwhile, Canadians can cope with inflation through dividend investing.
Three under $10 dividend-payers have yields of over 7%, which is 2% higher than the latest inflation reading. You can choose from Timbercreek Financial (TSX:TF), Doman Building Materials (TSX:DBM), and Diversified Royalty Corp. (TSX:DIV). However, understand the risks in each company before taking a position.
Strong pipeline of opportunities
Timbercreek Financial is a $781.9 million non-bank, commercial real estate lender. It provides shorter-duration, structured financing solutions (less than five years) to commercial real estate professionals. The stock generates strong risk-adjusted yields for investors because of the conservative lending policy.
In Q4 2021, Timbercreek experienced high funding and robust transaction volumes. Net mortgage investments rose 1.4% versus Q4 2020. Net income reached $2.41 million compared to the $1.61 million net loss. For the full-year 2021, net income was $41.3 million, a 29.1% year-over-year increase.
Blair Tamblyn, Timbercreek’s CEO, said, “The fourth-quarter results reflect a highly active period on the funding front and healthy transaction volume.” He adds, “Heading into 2022, the operating environment is likely to be noticeably improved and the pipeline remains strong.” At only $9.52 per share (+0.16% year to date), the dividend yield is a lucrative 7.26%.
Growth strategy is unfolding
Doman Building Materials saw its net earnings in 2021 climb 78.7% to $106.5% million versus 2020. Its adjusted EBITDA rose 57.7% year over year. This $659.74 million company is the only full integrated national distributor of building and related materials in Canada. In North America, Doman is the leading distributor of building materials.
Amar S. Doman, Doman’s chairman of the board, said, “I am pleased with how our growth strategy continues to unfold, resulting in record annual sales and net earnings.” While robust activity and pricing could continue in 2022, management said increasing interest rates and other similar factors may impact market dynamics. The stock trades at $7.61 per share and pays a 7.36% dividend.
Cheap, high-yield stock
Diversified Royalty investors enjoy a 9.14% year-to-date gain thus far in 2022 on top of the generous 7.24% dividend yield. The royalty stock also trades at an absurdly cheap price of 3.04% per share. Your $6,000 can buy nearly 1,974 shares and generate $434.40 in annual dividends.
The $380.20 multi-royalty company owns the trademarks to and collect royalties from six royalty partners. Mr. Lube, AIR MILES, Mr. Mikes, Sutton, Nurse Next Door, and Oxford Learning Centres are gradually recovering from the pandemic’s fallout.
Financial buffer
The high-yield stocks in focus can generate considerable financial buffers to help investors cope with rising inflation.
