Striking when the iron is hot can make a difference in your payouts. Suppose there are two identical portfolios with similar stocks in the same ratio. But one portfolio performs better than the other. Why so? It is because the timing of buying the stock can create a significant difference, just like now. Today if you buy Enbridge (TSX:ENB) and True North Commercial REIT (TNT.UN) stocks, you can lock in a 7.4% and 11.5% dividend yield, respectively.
How much do these yields produce in income? Let’s find out.
Enbridge‘s huge payout
A $5,000 investment in Enbridge today can buy you 101 shares that will pay $358.50 in annual dividend income. Enbridge’s average dividend yield is 6.5%. It means a $5,000 investment on an average day would have bought you 92 shares. Buying the stock near its 52-week low can get you nine extra shares and a $31.95 additional annual dividend.
How is it possible? The stock price is volatile and determines how many shares you can buy with a given amount. The stock price is a reflection of a company’s earnings potential, but there is always noise that causes the price to deviate away from its intrinsic value.
Enbridge earns relatively stable cash flows from the transmission of oil and gas through its pipelines. But this cash flow largely depends on Canada’s oil and gas exports to the United States, which makes its stock sensitive to the American economy.
Enbridge’s stock recently fell to its 52-week low of $47.70 amid the U.S. debt crisis. The U.S. government voted on a bill to suspend the government debt ceiling till 2025. It is a critical moment for America because if the government cannot borrow more money, it might default on its Treasury bills. That could trigger a chain of events and probably will lead to a recession.
Moreover, investors are bearish as fears of recession and the debt ceiling impact make them anxious. Now is the right time to be greedy and buy into Enbridge shares to lock in a 7.4% dividend yield. The worst-case scenario could be delays in upcoming pipeline projects. But that won’t affect Enbridge’s current dividends that are paid from 60-70% of its existing cash flows.
The U.S. government will likely fill its Strategic Petroleum Reserve during the recession, which could keep toll money coming for Enbridge.
True North Commercial REIT’s big payout
While Enbridge stock is caught in the middle of the oil industry and U.S. market bearishness, True North Commercial REIT is caught in its own bearishness. The commercial REIT’s stock has more than halved after the management slashed monthly distributions by 50%. But the way the math works, the stock price fell more than the distribution, increasing its yield.
Distribution yield = Annual Distribution Per Share/Stock Price
A $1,000 investment could buy you 386 shares of True North Commercial REIT and give you a payout of $114.60. But had you invested $1,000 before March, you would own 165 shares whose annual payout was reduced from $98 to $49. If you buy this stock now, you get a higher payout and a chance to grow your investment with stock price growth.
But the REIT comes with a risk of the management announcing another dividend cut or the REIT facing lower cash flows in a recession. Risk is high as the commercial REIT saw a significant dip in its occupancy to 93% in 2022 (96% in 2021). More tenants are vacating or reducing their leased space. True North Commercial REIT is selling properties to reduce debt and pay mortgages.
These signs hint at a troubled stock. But the REIT still has $0.60 adjusted funds from operations, of which $0.297 or 49.5% is for distributions. Now the REIT has the financial flexibility to use the remaining cash to pay the mortgage while it looks for more tenants.
If True North Commercial REIT survives these difficult times, it could emerge as an efficient REIT and bring significant passive income to shareholders.
You can buy these stocks and hold them for the long term. They can keep your dividend portfolio diversified in a way that enhances returns and reduces risk.