Not all discounted dividend stocks are worth buying, no matter how attractive their yield looks, thanks to the discount. The reason is that not all dividend payers may be financially stable enough to keep paying dividends through whatever market or economic activity has triggered the slump that has led to the high yield.
Still, there are three heavily discounted dividend stocks that you may consider adding to your portfolio for the long run.
A REIT
Real estate investment trusts, or REITs, often offer above-average yields because they are required to distribute most of their earnings as dividends. REIT stocks that experience decent growth can be an exception to this common pattern, and Allied Properties REIT (TSX:AP.UN) used to be one such yield.
This urban office space REIT experienced powerful growth in the last decade, but it has been brutalized since COVID.
The REIT has lost over half of its value from its pre-pandemic peak, and as a consequence, its yield has more than doubled from its 2019 peak. Currently, it’s offering a juicy 10% yield to its investors, so if you invest $20,000 in this REIT in your Tax-Free Savings Account (TFSA), you can start a $166 tax-free monthly passive income. The payout ratio has grown to dangerous heights, but so far, there are no signs of a dividend cut or suspension.
A capital market company
Alaris Equity Partners (TSX:AD.UN) have a relatively simple business model — they invest in businesses that need financial assistance but are not willing to give up control over their companies, which limits their options.
By choosing the right companies to invest in, Alaris can create value for everyone involved, including its own shareholders. Insiders own about 2.9% of the company, which shows that people running the company have confidence in its potential.
Alaris hasn’t been a great pick when it comes to capital-appreciation potential for the last few years, though it did experience compelling growth after the Great Recession. It’s also quite heavily discounted from its pre-pandemic peak, and this slump has pushed its yield up to an attractive level: 10%. This yield is backed by a rock-solid payout ratio, endorsing its long-term viability.
An energy stock
When it comes to dividends, Enbridge (TSX:ENB) is one of the most trusted energy stocks. The company has paid a dividend to its investors for about 68 years and has been growing its payouts for 28 consecutive years. The company has proven its mettle for dividend growth through multiple market-wide and sector-specific crises.
Apart from its stellar dividend history, the business model of the company is another reason it can be held for the long haul.
Its pipeline business already makes its revenues safer than most upstream and downstream energy companies, and it has augmented this strength with a sizable natural gas utility business, which it’s planning on expanding significantly through a U.S. acquisition. The stock is currently offering a generous 7.9% yield.
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Foolish takeaway
The three companies have solid dividend histories, healthy business models, and market presence backing up their position as long-term dividend picks. But they can also be decent growth-oriented picks once they start recovering, though this strength may not last in the long run.
