The equity markets could remain volatile this year amid high inflation, higher interest rates, and ongoing geopolitical tensions. So, investing in high-yielding dividend stocks would be prudent, as investors can earn a stable passive income irrespective of the market movement. However, investors must be careful as dividends are not guaranteed. Here are my two top picks of stocks with solid underlying businesses that pay monthly dividends at a healthier rate.
Pizza Pizza Royalty
Pizza Pizza Royalty (TSX: PZA) would be a top stock to have in your dividend portfolio due to its highly franchised business. The company earns royalties from its franchisees based on their sales, not profits. So, high inflation will not have much impact on its financials. In 2022, the company posted a solid performance, with its same-store sales and royalty pool sales growing by 15.2% and 15.1%, respectively.
The reopening of non-traditional restaurants, value messaging, promotional activities, and price hikes drove its same-store sales. Besides these promotional efforts, the company opened 45 new restaurants in the year, contributing to its sales growth. Boosted by the topline growth, the company’s adjusted EPS (earnings per share) grew by 14.3% year over year. Supported by its solid performance, Pizza Pizza Royalty raised its monthly dividend by 3.6% to $0.0725/share, with its yield currently at 6.38%.
Meanwhile, I expect the uptrend to continue as Pizza Pizza Royalty’s management plans to increase its restaurant count by 3–4% this year. Also, its innovative product launches and creative marketing strategies could drive its sales in the coming quarters. Given its healthy growth prospects and stable cash flows, I believe the company’s future payouts are safe. PZA stock trades at an attractive NTM (next 12 months) price-to-sales and NTM price-to-earnings multiples of 15 and 0.8, respectively, making it an attractively valued buy right now.
TransAlta Renewables
Second on my list would be TransAlta Renewables (TSX: RNW), which operates or has an economic interest in around 48 renewable power-producing facilities. Amid the rising interest rates, weakness in the renewable energy space, and soft quarterly performances, the company has lost 36.5% of its stock value compared to its 52-week high.
In the recently announced fourth quarter, its power production declined by 55-gigawatt hours. As a result of lower production, its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) and free cash flows declined by $7 million and $29 million, respectively.
Despite the near-term volatility, TransAlta Renewables could be an ideal buy for income-seeking investors, as it has signed long-term PPAs (power purchase agreements) to sell most of the power produced from its facilities. The average remaining life of these contracts stands at 12 years. The company expects to put several assets in Australia into service this year, while Kent Hills facilities could also start contributing over the next few months. Additionally, management has announced that it would focus on paying dividends rather than growth to navigate through the macro headwinds.
So, considering all these factors, I believe TransAlta Renewables’ payouts are safe. With a monthly payout of $0.07833/share, its dividend yield stands at 7.61%. RNW trades at an NTM price-to-earnings multiple of 15. So, considering all these factors, I am bullish on TransAlta Renewables.
