Are you looking for some quality dividend stocks to add a little extra income to your portfolio?
If so, now is a good time to go shopping.
Many dividend stocks are currently way down from their all-time highs, sporting higher yields than they had before. Energy stocks are currently way down from their peak levels, seen in the summer of 2022, and bank stocks are still slightly down from their pre-crisis levels. This year has seen some big moves in the broad market indexes, but it’s mostly been tech and growth that have benefitted. Dividend stocks are, in many cases, down for the year, meaning that bargains are beginning to become available.
In this article, I will explore three high-yield buys for 2023.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) is one of Canada’s cheapest and highest-yielding bank stocks. At today’s price, it has a 6% dividend yield, which is higher than the average for Canada’s Big Six banks.
Why is BNS stock so cheap and high yielding?
For one thing, it hasn’t grown as quickly as other Canadian banks have. Over the last five years, it has grown its revenue by only 3% and its earnings per share (EPS) by only 1.3% per year. Those figures are both below average for Big Six banks.
Second, it is perceived to be risky. Scotiabank is geographically diversified, with operations in Asia and Latin America. This is a fairly unique quality: most Canadian banks diversify into the U.S. rather than abroad. Unfortunately, some of the markets that Scotiabank is in have issues with political stability and inflation.
Overall, BNS is riskier than the average large Canadian bank. Its yield, however, is quite juicy.
Enbridge (TSX:ENB) is another well-known, Canadian, high-yield stock. It has a 6.66% yield at the time of this writing.
Enbridge operates primarily as an oil pipeline company and as a natural gas utility. It has one of the biggest pipeline networks in the world and supplies 75% of Ontario’s natural gas. Pipelines are very hard to get approved by the government; just two years ago, the U.S. government cancelled Keystone XL — a major Canada-U.S. pipeline project. This was actually a positive for Enbridge, because it reduced its competition.
Enbridge is a very important player in North America’s energy infrastructure. However, it is not without its risks. Currently Enbridge pays more in dividends than it earns in net income or free cash flow. This tends to indicate a dividend that is at risk of being cut. So far, this hasn’t stopped Enbridge from raising its dividend. But history does not always tell you what the future will look like.
First National Financial (TSX:FN) is a Canadian non-bank mortgage lender whose stock has a 6.2% yield. It partners with mortgage brokers to find Canadians who want to shop around for mortgages. It aims to offer these Canadians competitive mortgage rates. Unlike a bank, FN does not take deposits. Instead, it funds its loans from securities on its balance sheet. This business model leaves FN without the risk of a big wave of withdrawals diminishing its ability to lend. After the March 2023 banking crisis, that looks like a good thing.