Yield-hungry investors chase high-yield dividend stocks for bigger income. Their yearning intensifies during bearish markets or if inflation threatens purchasing power like today. Despite decelerating domestic and global inflation, the Bank of Canada (BOC) seems bent on continuing its quantitative tightening policy this year.
Canada’s inflation cooled to 2.8% in June 2023, but the policymakers say underlying inflation pressures are more persistent than expected. Only higher rates will prevent it from rising again. Now, BOC expects to hit its inflation rate target of 2% by mid-2025.
Meanwhile, two dividend titans are attractive options to preserve purchasing power or beat inflation. Firm Capital Mortgage Investment (TSX: FC), or FCMIC, and Diversified Royalty (TSX: DIV) pay dividends of more than 8%. While you need to exercise caution with extra high yields, the payouts of both Canadian dividend stocks are unstoppable amid a challenging environment.
Niche player
FCMIC provides loan origination, underwriting, loan servicing, and syndication services through Firm Capital Corporation, a non-bank lender. The $369.69 million company focuses on residential and commercial short-term bridge financing and conventional real estate financing.
Management’s growth strategy is to concentrate on niche markets that remain under-served by large banks or lending institutions. Its investment objective is to preserve shareholders’ capital. In the six months that ended June 30, 2023, net income rose 7% year over year to $17.23 million.
As of the first half of 2023, around 83% of FCMIC’s mortgage portfolio is first mortgages. About 95% of these mortgages have floating interest rates, while 87% of the total portfolio loan-to-value is less than 75%. At $10.72 per share (+5.34% year to date), the financial stock’s dividend yield is a juicy 8.73%.
Besides the monthly payout, FCMIC has a dividend-reinvestment plan (DRIP) and share-purchase plan. Investors can participate by reinvesting the monthly cash dividends in additional shares. Your capital compounds faster if you reinvest in the dividends 12 times a year instead of four.
Royalty advantage
Diversified Royalty trades at only $2.90 per share (+1.92 year to date), but the dividend offer is a juicy 8.28%. Also, the payout frequency is monthly. If you purchase 2,241 shares, your $6,498.90 investment will generate $44.84 every month.
The $414.35 million multi-royalty corporation owns the trademark to ongoing business in the royalty pool and collects royalties from them. Mr. Lube is the top royalty partner along with Mr. Mikes, Air Miles, Sutton, Nurse-Next-Door, Oxford Learning, and Stratus.
Diversified incurred a net loss ($8.88 million) in 2020 during the coronavirus breakout, but the businesses of the royalty partners recovered remarkably in the following year. In the first quarter of 2023, the royalties and management fees remain strong. Diversified’s total revenues and income from operations rose 26.67% and 27.86% year over year to $12.34 million and $11.11 million.
The impressive financial results indicate the advantage of the royalty structure. Notably, the dividends declared and paid during the quarter were $8.5 million, 26.8% higher than a year ago. Diversified Royalty hasn’t missed a monthly dividend payment since November 2014.
High yield, high risk
High-yield stocks provide generous passive income streams but are higher-risk investments. Thus far, the payment histories of Chemtrade Logistics and Diversified Royalty show they are not dividend traps.
