High yields are associated with high risk. Where there is a risk, the company’s size matters. Many a time, risk-averse investors prefer buying large-cap dividend stocks when they are trading near their low. Amidst these large-cap stocks, some small-cap, high-yielding dividend stocks often get overlooked. There is a higher risk with small caps. However, if you look through them carefully, you can lock in some astounding dividend yields that can build wealth.
Three overlooked high-yielding dividend stocks to buy
I will take you through three such stocks and why I consider them a good investment at their current price point.
- Fiera Capital (TSX: FSZ) – 12.75%
- Timbercreek Financial (TSX: TF) – 9.08%
- Cogeco Communications (TSX: CGO) – 6.5%
Fiera Capital
This $734.7 million market cap stock is an asset management company that moves in tandem with the stock market’s performance. It manages the money of others for a management fee. While investing in mutual funds is recommended, you can invest in the company running a mutual fund. Last year, its assets under management (AUM) did not increase much as investors have been putting a pause on their investments. Despite slower AUM growth, the company saw its revenue surge.
Though Fiera may not have a stellar record of dividend growth, it has regularly paid dividends since 2010 with no dividend cuts. A 12.75% yield is lucrative if you are expecting a bull market at the end of the year. Fiera Capital could see a surge in management fees and investment profits in a bull run.
Timbercreek Financial stock
This short-term mortgage lender has built a strong model to give loans to commercial REITs on their income-generating assets. Timbercreek Financial often gets overlooked as it has a market cap of $632.5 million. However, this small-cap stock has maintained a stable dividend per share for the last eight years. It even withstood the 2020 pandemic crisis when many commercial REITs delayed payments. Right now, its loan originations have slowed as commercial REITs have paused their development until financial conditions improve.
In March, the company paid a special dividend of $0.0575 as it had a stellar year in 2023 with interest rates at a decade high. A higher interest rate helped TF collect more interest. Any cut in interest rates will help TF increase its loan originations, thereby growing its revenue from processing fees. It has a dividend payout ratio of 83%, giving it flexibility to pay dividends even in tough times.
While TF faces credit risk, it is working with borrowers to help them repay. A revival in the real estate market could ease the credit risk. If you are optimistic about commercial REITs, investing in TF can help you diversify across multiple properties and reduce the risk. And a 9% yield is a good bargain.
Cogeco Communications stock
After looking at a 9-12% yield, a 6.5% yield might not look high. However, when you hear the dividend growth rate, you will know why I added it here. This $2.3 billion market cap company that provides telecom services to over 1.5 million customers has been growing its dividend by a whopping 10% every year for the last 11 years. If you buy this stock at $55.60, you can lock in a $3.40 annual dividend, which will grow again in November. Despite such high growth, the company is paying 33% of its free cash flow as dividends and using the remaining amount to expand its network.
Looking at the fundamentals, the company can continue growing its dividends as it has ample free cash flow flexibility. If the company maintains its 10% dividend growth rate, your dividend per share could increase to $5 by November 2029, giving you a 9% yield.
