The TSX has an impressive collection of generous dividend payers, predominantly from the energy, financial, and real estate (specifically, real estate investment trusts or REIT) sectors. This includes some of the top stocks in Canada. In the right market conditions — i.e., when there is a market-wide or sector-wide slump, many of these generous dividend stocks become even more attractive, as the yield increases significantly.
But there is a catch. If the yield is too attractive and the stock has remained down for a relatively long time, it’s natural to wonder how long the company can sustain its payouts. An analysis of the company’s financials can clear up the matter of the financial stability of a company’s dividends, but relatively long-term ultra-high yield is still something that warrants more than usual research and due diligence.
That doesn’t mean you should stay away from such lucrative investments. The right stock offering a mouthwatering yield can be a powerful addition to your portfolio, and there are at least two such stocks currently available on the TSX.
A mortgage company
According to the Residential Mortgage Industry Report published by CMHC-SCHL in Nov. 2022, mortgage growth is slowing down. It’s a natural progression and a warranted correction after investors and homeowners flocked to the mortgage lenders, trying to take advantage of the low rates.
Ironically, the pattern is not reflected in the stock of a mortgage lender like MCAN Mortgage (TSX:MKP), which services the mortgage seekers not entertained by the big banks and credit unions. It’s an ever-present and steadily growing market. But that’s not the only business MCAN is in. The company also offers construction loans and commercial loans.
Its mortgages are sliced up into three different segments, which (in order of volume) are securitized, residential uninsured, and residential insured mortgages. This shows that the company is tapped into different niche segments of the market.
It’s currently one of the most attractive dividend stocks in Canada, thanks mostly to its outstanding 9% yield. If you invest $1,000 in the stock, you can generate about $90 a year and get your capital back in under 12 years.
An investment company
Investing in an investment company can boost your portfolio, assuming you choose the right company. If you are looking to add more dividend potential to your portfolio, Fiera Capital (TSX:FSZ) can be the right company. It’s offering a mouthwatering yield of about 9.3%, which promises you an annual income of about $93 with just $1,000 invested in the company.
However, before you make an investment decision, you should know the good, the bad, and the ugly of this stock. The good is, of course, its dividend yield and dividend history. It has been growing its payouts for a few years now. The bad is its growth potential or, rather, the absence of one. The ugly is its payout ratios, which are almost always way above 100%.
Still, the company has managed to maintain and even grow its payouts with these ratios, so we can reasonably hope that it will keep doing the same in the future as well.
The two small-cap stocks are currently offering two of the highest yields available in the Canadian markets. Both stocks are reasonably valued, MCAN more so than Fiera, and they have a history of growing their payouts, so there is a decent probability that you may experience a slight uptick in your passive income if you choose to invest $1,000 in one or both of these companies ($500 each).