The TSX is filled with various real estate, financials, and energy stocks — many of which pay out dividends. Most pay reasonable dividend yields roughly in line with where longer-term bonds are. However, there are some ultra-high-yield dividend stocks that are worth looking at mostly due to the fact that these yields may seem too enticing to ignore.
Of course, a great deal of risk usually comes with higher-than-average dividend yields. That’s because the market typically signals it’s pricing in a dividend cut or views a given yield as unsustainable when it hits some level that’s way out of line with a company’s historical yield.
Here are two ultra-high-yield stocks I think are within their longer-term historical range, and one I think would fall into the category of too risky to hold right now.
Enbridge
Leading pipeline operator Enbridge (TSX: ENB) has been a company I’ve pounded the table on in the past for long-term dividend investors. The passive-income stream this company provides really is second to none. And with a dividend yield of 7.4%, it’s obviously attractive to investors looking to raise their average portfolio yield over long periods of time.
Enbridge has been a solid long-term performer in the market, continuing to provide the kind of long-term capital-appreciation investors are constantly on watch for, in addition to solid dividends. This total return profile has exceeded many of the top tech stocks investors were so closely watching post-pandemic. That says something about sticking with a dividend-focused company through thick and thin.
As the energy market continues to rebound, Enbridge’s pricing power should increase as well. Thus, for those looking for a sneaky play to ride rising oil prices, this would be my preferred pick over the next year.
SmartCentres REIT
Another top pick of mine in recent years has been SmartCentres REIT (TSX: SRU.UN). This retail-focused real estate investment trust (REIT) owns 174 properties in North America, focusing on mixed-use buildings. These buildings blend commercial and residential spaces, providing investors with exposure to both the retail and residential sectors, a mix some investors don’t like due to the retail component of this trust.
The thing is, I think SmartCentres’s 8.1% dividend yield is sustainable and well-supported by current cash flows. The company’s prime properties with solid anchor tenants that are relatively recession-resistant. We have seen that throughout the post-pandemic environment, with SmartCentres retaining very high occupancy rates while holding rental income relatively steady.
Over the long term, I think this REIT could have greater upside tied to its ability to raise rents and continue to hold its higher occupancy rate. For those thinking truly long term about the real estate market and want exposure to a stable option with high-quality blue-chip properties, this is a REIT to consider.
Allied Properties REIT
Now, here’s a REIT I think investors may want to steer clear of: Allied Properties REIT (TSX: AP.UN) is an office-oriented REIT focused on owning major office buildings in Canada’s major cities. We’re seeing some strong headwinds form in the commercial real estate market (particularly in the U.S.). But Allied hasn’t seen this really hit its stock price to the degree many of its U.S. counterparts have seen. I think that’s going to change in short order.
The Toronto and Montreal office real estate markets have been hammered as work-from-home trends lead to higher occupancy rates across the board. As office real estate gets completely revalued in the years to come, I think Allied’s portfolio will take a big hit. Investors may be thinking they’re getting a steal with shares of this trust, trading seemingly at bargain levels. However, I think this is a value trap worth avoiding.
A dividend yield of 10.5% screams trouble to me. Any time investors see a double-digit yield like this on a company with a troubled balance sheet and concerning forward prospects, it’s time to run in the other direction. This is a top Canadian REIT I’d avoid right now.
