Before I get into the dividend stocks we’re going to focus on today, there’s an important note I want to make. Dividend payouts are great — large ones, certainly. However, too large of a dividend payout and companies cannot keep up with the payments. Too small of a percentage, and you worry that perhaps you’re company isn’t so concerned with dividends.
A great payout ratio is one that is somewhere between 50% and 80%. That dividend-payout ratio shows that dividend stocks are focusing on dividend payments, but not so much that they don’t have earnings to play with. With that in mind, let’s look at two dividend stocks with large payouts — ones that also offer large dividend yields.
Scotiabank
Bank of Nova Scotia (TSX: BNS), better known as Scotiabank, is one of Canada’s largest banks. Yet just as with the other Big Six banks, it’s been going through quite a difficult period. Quarter after quarter, the company has missed earnings estimates, falling short dramatically during its last report.
Yet, as with the other banks, Scotiabank enjoys being part of the oligopoly of Canadian banking institutions. There simply isn’t a lot of competition, with these banks taking up 90% of the market. Because of this, Scotiabank can continue to look forward to earnings coming in, especially as the market recovers.
In the case of Scotiabank, this will likely mean growth from its investments into emerging markets. And that should be quite extreme when we enter a bull market. Yet, for now, the bank remains focused on dividend payments to keep investors interested.
Scotiabank stock currently offers a 7.36% dividend yield as of writing. Further, it trades at just 10.34 times earnings and 2.18 times sales. Shares are down 18% in the last year, with its payout ratio at a healthy 72.34% as of writing. So, you shouldn’t worry about Scotiabank stock suddenly cutting that yield — especially with market improvements.
First National
Another strong option for investors to consider is First National Financial (TSX: FN). In this case, First National isn’t one of the Big Six banks. However, this has proven perhaps a good thing! The bank has surged past earnings estimates for the last two consecutive quarters. So, it looks like not only is the dividend safe, but it could grow as well.
Furthermore, First National stock has the benefit of being a monthly dividend payer. Therefore, you can get more than just quarterly payments and use those monthly payments to even invest back into the stock, which you may want to do when the housing market starts to improve.
This could certainly happen quite soon, considering that interest rates aren’t likely to rise again, so says the Federal Reserve in the U.S. and Bank of Canada. As inflation decreases, as do interest rates. Canadians will likely seek out mortgages once again, which is First National stock’s bread and butter.
So, while shares are trading at just 9.02 times earnings and 3.8 times sales, you may want to bring in that 6.92% dividend yield — especially with shares up just 5% in the last year. And with a payout ratio of just 58%, that dividend looks more than adequate to continue for the near future.
