The Bank of Canada became the first G7 country to begin an interest rate cut. The TSX breathed a sigh of relief when the bank cut the interest rate to 4.75% from 5%. Several dividend stocks surged significantly as they have been waiting for a rate cut. It is still not too late to pounce on the opportunity and grab some ultra-high yield before stock prices recover as more rate cuts follow.
Two ultra-high-yield monthly dividend stocks to buy in June
Canada has some good dividend stocks that give monthly payouts. However, high interest rates had pulled down their stock price. Investors feared a dividend cut if things continued the way they were.
Timbercreek Financial stock: 9.5% yield
Short-term mortgage lender Timbercreek Financial (TSX: TF) gives loans to commercial real estate investment trusts (REITs) to develop or buy income-producing real estate. It enjoyed strong profits in 2023 as its lending portfolio generated up to 10% average interest. Higher interest income converted into higher profit. However, it also slowed the lending activity. Many borrowers repaid their loans to reduce interest costs, and many paused new development until financing costs were reduced.
In its latest first-quarter earnings, Timbercreek’s net mortgage investments reduced to $977.5 million from $1.15 billion a year ago, reducing income from processing fees. Debt repayments also lowered its interest income. Hence, its distributable cash flow fell to 90% of the dividends paid. The Bank of Canada’s interest rate cut could spur lending activity and drive Timbercreek’s net mortgage investments in the coming months.
Timbercreek Financial’s stock price surged 3% on the interest rate announcement. It is not too late to buy the stock and lock in a 9.57% yield. The lender pays a fixed dividend of $0.0575 every month.
Slate Grocery REIT: 10.39% yield
Slate Grocery REIT (TSX: SGR.UN) unit price surged 2% on the interest rate announcement as the overall real estate sector saw upward momentum. The REIT has strong fundamentals and an economic environment. It has been leasing the retail space it acquired two years ago and increasing its occupancy ratio. Most of its tenants are grocers and grocery-anchored stores.
The REIT has increased its lease by over 10% as it charges a lower lease than others, giving it enough scope to increase rent. An interest rate cut could ease the interest expense pressure on its US$1.16 billion debt. The REIT paid 80% of its funds from operations as distributions.
Time to build a portfolio payday
The above two high-yielding dividend stocks are at a sweet spot, trading near their lows. They have the financial flexibility to continue paying dividends. You can invest a lump sum in these stocks and build a new passive-income stream for years. Timbercreek Financial and Slate Grocery REIT pay dividends on the 15th of every month.
A $10,000 investment in Slate Grocery REIT can buy you 883 units of the REIT that can pay US$63 every month. A $10,000 investment can buy you 1,381 shares of Timbercreek Financial, which can pay $79.4 per month for several years.
A one-time investment now can get you a $141 paycheque on the 15th of every month. And as the stock price revives, you can also benefit from capital appreciation. However, if you sell these stocks to book profits, you might have to give up on the paycheque. Instead, you could invest the dividend from these stocks to buy growth stocks that only give capital appreciation.
