They Pay 10% Dividend Yields, But Are They a Trap?

These two dividend stocks should be on your radar if you are targeting high-yielding dividend income for your self-directed portfolio.

Dividend investing is an excellent way to put your money to work in the stock market for great returns. The TSX boasts a wealth of high-quality dividend stocks you can consider adding to your self-directed investment portfolio to secure a quarterly or monthly passive-income stream.

When choosing dividend stocks for your portfolio, you cannot pick high-yielding dividend stocks randomly. Many stocks can sustain high dividend yields in a booming economy.

However, inflation is high, and borrowing is expensive. In such a market environment, only companies with solid fundamentals and resilient business models can deliver reliable shareholder payouts. Most other stocks in the market can become a trap for income-seeking investors.

Today, I will discuss two high-yielding dividend stocks that might make good additions to your self-directed investment portfolio.

NorthWest Healthcare Properties REIT

NorthWest Healthcare Properties REIT (TSX:NWH.UN) is a real estate investment trust (REIT) boasting a $1.86 billion market capitalization. Investing in NWH.UN stock means gaining access to a portfolio of high-quality healthcare real estate assets.

NorthWest owns a diversified portfolio of real estate related to healthcare in Canada, Australia, Brazil, Germany, and other international markets. With most of its income backed by governments, NWH.UN REIT’s cash flows are relatively secure.

As of this writing, it trades for $7.70 per share, boasting a massive 10.39% annualized dividend yield it pays out every month. Its dividend yield keeps getting higher as its share prices fall. The drop in its valuation comes through weakness in the broader real estate sector triggering a selloff.

The high interest rate and increased costs have impacted its bottom line. That said, NorthWest stock’s average lease agreements have 14-year terms, ensuring stable cash flows for years to come. While the exceptionally high yield might be alarming, it can be a safe bet that will recover when the market cools down.

Cardinal Energy

Cardinal Energy (TSX: CJ) is a Calgary-based $1.10 billion market capitalization energy company. When it comes to energy companies, Cardinal Energy is as traditional as it gets. The oil-focused Canadian company’s principal business activity is acquiring, exploring, and producing fossil fuel products in Saskatchewan and Alberta.

As of this writing, Cardinal Energy stock trades for $6.91 per share, boasting a 10.41% dividend yield. Traditionally, an energy stock boasting such high-yielding dividends would be better avoided than invested in. That said, Cardinal Energy’s performance was pretty good in 2022. Fiscal 2022 saw it report a 170% and 174% increase in its operational cash flow and adjusted funds flow year over year, respectively.

While it carries a riskier dividend profile, favourable conditions in the energy sector can allow it to continue paying its investors high-yielding dividends until the markets recover.

Foolish takeaway

Dividend stocks tend to carry high debt loads but enjoy stable cash flows. When the economy is booming, and the market environment is supportive, sustaining higher-yielding payouts to investors is a more achievable task. When inflation increases, and interest rates rise to combat it, these stocks can experience downturns due to stable earnings not keeping pace with rising costs.

Companies that take measures to fund dividends through volatile market environments carry a lower degree of capital risk than others. It is all a matter of carefully studying potential investments and allocating money wisely. To this end, NorthWest Healthcare Properties REIT and Cardinal Energy stock meet the requirements to make them solid contenders to consider.

Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends NorthWest Healthcare Properties Real Estate Investment Trust. The Motley Fool has a disclosure policy.

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