When you buy stocks for dividend income, you must keep in mind that no dividend is perfectly safe. Dividends are paid at the discretion of a company. However, a company has no legal obligation to pay a dividend like they do when paying a coupon on a bond.
Therefore, when looking for safe dividends, it is key to understand the fundamentals of a business before investing. Look for stocks with resilient balance sheets, products or services that are considered essential, contracted/regulated cash flows, and a track record of consistently growing their earnings and dividends.
A thorough investment due diligence process can save you from a lot of pain. If you are looking for some ideas for safe dividends, here are four stocks with attractive 4%-plus dividend yields to consider today.
A diversified infrastructure stock
Brookfield Infrastructure Partners (TSX:BIP.UN) is a diversified owner and operator of essential infrastructure assets around the globe. Think about assets like cell towers, data centres, ports, pipelines, and home utilities. These generate a steady stream of cash. Notably, 75% of its contracts are inflation-linked, meaning its earnings stand to grow with inflation.
Over the past 10 years, it has grown its funds from operations (FFO) per unit and distribution per unit by an 8% compounded annual growth rate (CAGR). Today, this dividend stock pays a 4.3% distribution yield.
Its payout ratio is sitting just below 70%, which suggests it still has the capacity to invest in its business and pay and grow its dividend.
A pipeline stock for an elevated dividend yield
Pembina Pipeline (TSX:PPL) provides crucial energy transportation services for the Canadian oil patch. It has a network of pipelines and processing plants that operate like toll roads for the oil industry.
Over 80% of Pembina’s revenues are contracted and this helps provide a baseline of earnings that protect its dividend. Over the past decade, it has grown its earnings per share by a ~5% CAGR. While dividend growth stalled during the pandemic, Pembina has been increasing its dividend by a single digit rate in the past two years.
This dividend stock is very well-managed, and it has one of the best balance sheets amongst midstream and pipeline peers. This provides it flexibility to invest and keep paying its attractive 6.5% dividend yield.
A strong real estate stock for income
If you like real estate, Granite Real Estate Investment Trust (TSX:GRT.UN) is a great bet for safe income. Granite owns industrial real estate that forms the backbone of commerce in Canada, the U.S., and Europe. It has 128 logistic and manufacturing properties in its portfolio.
This REIT has grown its adjusted FFO (AFFO) by around 4% a year for the past 10 years. However, recent AFFO growth has increased to the high single digits due to strong rental rate growth for industrial properties.
Granite has grown its distribution for 12 consecutive years. Its sits with a 77% payout ratio, which means its current 4.1% distribution is well-covered.
A safe stock with decades of dividend growth
Another safe dividend stock yielding over 4% is Canadian Utilities (TSX:CU). It yields 5.16% today. It operates $22 billion worth of electricity/gas transmission lines, energy storage, and retail energy solutions.
The company has a 51-year track record of annually increasing its dividend. This is not a growth stock by any means, but it expects to steadily grow by the low single digits. Its earnings payout ratio sits around 85%, so its dividend appears fairly safe.
CU is not an exciting stock, but if safety is key to your investment thesis, this is one you can’t go wrong with over the long term.
