There are many Canadian investors who continue to seek out the top passive-income providers. They look at the dividend stocks on the TSX today with the highest dividend yields. But a yield isn’t everything.
That’s why today we’re going to look at dividend stocks with the highest yield and see which are buys and which are busts.
Labrador Iron Ore Royalty
In third place, we have Labrador Iron Ore Royalty (TSX: LIF), with a dividend yield of 8.93%. The stock currently trades at 11.33 times earnings, with shares down about 10% in the last year. Yet before you go off and buy the dividend stock, thinking it’s a steal, let’s take a quick look at its earnings report.
The iron ore company saw lower pellet prices during its third quarter recently. Royalty revenue then came down to $47 million compared to $63.5 million the year before. Net income per share came in at $0.77, a 38% decrease from the year before. Production was 13% lower than 2022 levels, with several equipment failures adding to the issues. So, as sales came down by 14%, the company gave an outlook that was lowered by over one million tonnes.
That being said, in the longer term, the dividend stock believes the move to low-emission green steel will be beneficial. Further, it thinks that the levelling of inflation and interest rates will help the stock continue forward. For now, the payout ratio remains at 99.54%, which is quite high. So, it could be worse, but keep an eye on Labrador stock for now.
Birchcliff Energy
Birchcliff Energy (TSX: BIR) comes in second on this list with a dividend yield of 12.74% as of writing. The dividend stock trades at 19.94 times earnings, with shares down 34% in the last year. That includes a drop after the company’s most recent earnings report.
The big news was that the dividend stock chose to “defer” the drilling in nine wells for the second and third quarter of 2023. This resulted in no new wells brought into production during the quarterly report. The stock did this, hoping for strong gas pricing in the winter months, setting it up for a strong fourth quarter and first quarter in 2024. So, that’s a big “what if” that investors weren’t quite on board with.
Meanwhile, shares of Birchcliff stock look a bit scarier in terms of fundamentals. Its payout ratio is at 193.75%, so the company doesn’t look like it can fully fund that dividend at this point. However, its debt-to-equity ratio is at least low, showing that the company does have funds to play with. This includes being approved for a share-buyback program. So, keep an eye on Birchcliff as well.
Melcor REIT
Finally, we have Melcor Real Estate Investment Trust (TSX: MR.UN), with a dividend yield 12.87% as of writing on the TSX today. Shares trade at 18.5 times earnings and are down 34% in the last year. The dividend stock has been dropping lower and lower throughout the year.
Third-quarter results remained stable for the dividend stock, even in the challenging market. So, while there wasn’t an improvement, there wasn’t a huge drop either. Its occupancy rate remained stable at 91%, with benefits likely coming in the next few quarters, according to management. For now, revenue was up 1%, and net operating income was up 2%, though funds from operations were down 4% year over year.
The issue here is a huge payout ratio at 240%, something that the stock won’t be able to continue to support if it continues to drop. Further, it holds a debt-to-equity ratio of 242%, so it certainly doesn’t have enough equity to cover all debts. So, if there is strength coming for the stock, I would wait to see that before buying this dividend stock on the TSX today.
