The market is bearish on several dividend stocks amid high interest rates. Last year, many dividend-paying companies slashed their payouts or restructured. The Dividend Aristocrats also slowed their dividend growth rate. All this happened as a rapid and significant surge in interest expense reduced their free cash flow used to pay dividends. You can’t blame them. Many Canadians with a mortgage also felt the heat of rising interest expenses.
Amid this high interest rate, two dividend stocks maintained their calm and kept their dividend-payout ratio at healthy levels.
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Timbercreek Financial: 8.89% dividend yield
Who would benefit from the rising interest rate? The one who earns it. And Timbercreek Financial (TSX: TF) has been earning high-interest income throughout 2023. In the fourth quarter, it had a loan portfolio of $946.2 million with a weighted average interest rate of 10%. Since Timbercreek Financial offers short-term loans to commercial real estate borrowers, it has a higher turnover ratio.
However, high interest rates slowed the turnover ratio to 44.9% in 2023 and 39.8% in 2022, from 65.4% in 2021 and 57% in 2020, when interest rates were near zero. The turnover ratio is the percentage of total loans borrowers repay. A higher ratio frees up capital for TF to lend it again and earn higher processing fees. The lender saw an increase in stage two and three loans, but higher interest income offset the risk. When interest rate cuts are announced later in 2024, TF could see a surge in loan turnover, paving the way for higher processing fees.
The lender has reduced its payout ratio to 86.7% in 2023 from 135.9% in 2021, hinting that it can continue to pay dividends. At present, the stock is down 18% from the time when the interest rate hike began. It is an opportune time to buy the dip and lock in an 8.89% annual yield for years.
Slate Grocery REIT: 10.37% dividend yield
Another way to earn a monthly passive income is through rent, and what better tenant than a grocer? You rarely see your neighbourhood grocery store replaced by a clothing or electronics store. The nature of the grocery business is resilient. They are sticky and act as an anchor that pulls other stores. And Slate Grocery REIT (TSX: SGR.UN) is leasing its stores to these sticky tenants.
The real estate market has been in a slump as higher mortgage rates reduced demand and pulled down real estate prices. The unit price of a real estate investment trust (REIT) reflects the value of its property portfolio. While the occupancy was high and leases were renewed at a 10% higher rent, the fair market value of properties dipped and affected Slate’s net profit. That explains the 32% dip in its unit price since the interest rate hike began.
If you know properties, they always appreciate in the long term. Those who bought property in the 2009 Financial Crisis enjoyed significant gains in the 2020 decade. Now is a good time to buy this REIT at the dip and lock in a 10.37% annual yield.
How to start earning $80 from next month onwards
The above stocks are available at attractive discounts. If you invest $5,000 each in the two stocks, you can buy 641 shares of TF and 443 units of Slate Grocery REIT. These shares can give you a combined dividend of $79.94. (Look at the table below).
| Details | Timbercreek Financial | Slate Grocery RFEIT | Total |
| Stock Price | $7.80 | $11.28 | |
| Monthly Dividend Per Share | $0.0575 | $0.09720 | |
| Invested Amount | $5,000 | $5,000 | $10,000.00 |
| No. of Shares | 641 | 443 | |
| Monthly Dividend | $36.86 | $43.09 | $79.94 |
| Yield | 0.74% | 0.86% | 0.80% |
Suppose you invest in the above two stocks in a normal market, where TF stock trades at $9.5 per share, and Slate Grocery REIT at $16.6, a $10,000 investment would buy you 526 and 301 shares, respectively. Since their dividend per share remains unchanged, you would earn $59 in monthly dividends.
The current discounted stock price can earn you an extra monthly dividend of $20.
