2 TSX Dividend Stocks With Lucrative Yields in December 2023

With yields of up to 13%, these two dividend stocks have long histories and great potential in the Canadian energy sector.

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High-yield TSX dividend stocks are some of the most exciting stocks around. This is because they hold the promise of consistently high dividend income coupled with the potential of significant capital appreciation. The trouble is that along with the high yields, there’s usually high risk.

Here are two TSX dividend stocks that have high yields as well as reasonable risk profiles, which make them worth considering.

Birchcliff Energy: A TSX dividend stock for natural gas exposure

With a very lucrative dividend yield of 13.5%, Birchcliff Energy (TSX:BIR) is definitely worth a look.

Birchcliff is a Canadian natural gas producer based in prolific basins in Western Canada, such as the Montney/Doig resource play in Alberta. The company has been around since 2005 and is heavily weighted toward natural gas. In fact, in the first nine months of 2023, natural gas accounted for more than 80% of its production.

This is where it gets interesting. Natural gas prices have been weak lately, as increased production has been met with mild weather, driving down demand. This has resulted in sharply lower net income and cash flows for Birchcliff, and, of course, a drop in its share price.

But the company has some things going for it. Firstly, its balance sheet is strong, with little debt and $53 million in cash. Secondly, Birchcliff is planning for increased production and cash flows. In 2023, the company expects to generate adjusted funds flow of $350 million and free funds flow of $50 million. Also, in 2024, the company is expecting its adjusted funds flow to be approximately $500 million, enough to cover capital expenditures and its dividend.

Freehold Royalties: A dividend backed by a lower-risk royalty model

The second high-yielding TSX dividend stock I’d like to bring to your attention is Freehold Royalties (TSX:FRU). Freehold is a Canadian oil and gas company that’s engaged in the production and development of oil and natural gas. The trust’s objective is to “deliver growth and lower risk attractive returns to shareholders over the long term.”

The company has interests in more than 18,000 producing wells from over 380 industry operators. Freehold incurs none of the operating costs or capital investment expenses; it simply receives a percentage of production.

Freehold’s dividend yield is currently a very generous and lucrative 7.7%. This is backed by a very strong balance sheet that includes $700 million in cash and cash equivalents and very little debt. While oil prices have fallen over the last year, Freehold’s five-year track record is impressive. Revenue has more than doubled, as has its cash from operations.

This TSX dividend stock has a well-covered dividend, with a 62% payout ratio and years of dividends behind it. In fact, Freehold has been paying a dividend for two decades. In the last five years, this dividend has increased 70% to the current monthly dividend of $0.09 per share. This equates to a compound annual growth rate of 11%.

The bottom line

In closing, keep in mind that investing in high-yield stocks is a higher-risk exercise. However, a few well-chosen TSX dividend stocks that sport lucrative dividend yields can go a long way in increasing your portfolio’s returns.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Karen Thomas has a position in Birchcliff Energy. The Motley Fool recommends Freehold Royalties. The Motley Fool has a disclosure policy.

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