Dividends are incentives to income-focused investors, but not all generous dividend payers are sound investment options. Some companies offer outrageous yields to lure investors. Yellow Pages Limited (TSX: Y) pays an attractive 11.4% dividend yield, although you might regret owning it.
First, a micro-cap stock is risky in today’s investment landscape. Second, at $8.79 per share, the year-to-date loss is 17.9%, while the total return in three years is -29.9%. Last, in Q1 2024, the revenue and net income of this $119.2 million publication and internet services company fell 12% and 32% year over year to $54.9 million and $8.4 million, respectively.
With the recent interest rate cut by the Bank of Canada, Headwater Exploration (TSX: HWX) and Atrium Mortgage Investment Corporation (TSX: AI) are better buys right now. Besides the lucrative yields, both stocks have market-beating returns.
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Top performer
Headwater Exploration belongs to the top-performing energy sector. The $1.7 billion exploration and development company operates in Marten Hills, Alberta and McCully Field near Brunswick. It produces petroleum and natural gas. At $7.12 per share, current investors enjoy a 15.4% year-to-date gain on top of the 5.6% dividend.
In Q1 2024, total sales, adjusted funds flow from operations, and net income rose 35%, 29%, and 25% year-over-year respectively to $127.4 million, $76.4 million, and $37.6 million compared to Q1 2023. The average production of 19,517 barrels of oil equivalent per day (boe/d) represents a 15% increase from Q1 2023.
The net income from continuing operations of $156 million in 2023 is 2,227% higher than in 2020. According to management, the multi-year business strategy includes growing base production, pursuing strategic land acquisitions and accretive M&A strategic acquisitions, and increasing quarterly dividends.
For 2024, Headwater has a $200 million capital expenditure budget and expects to produce 20,000 boe/d annually. Furthermore, the debt-free company has adequate liquidity to fund its capex and quarterly cash dividends, and meet contractual obligations in the near term.
Defensive lending program
Atrium Mortgage is among the steadiest TSX stocks in 2024 despite the high-interest rate environment. At 11.11 per share (+9.22% year to date), you can partake in the 8.1% dividend. Also, this non-bank lender pays monthly dividends, not quarterly. The $492.3 million company provides residential and commercial mortgages in Canadian urban centres with stable real estate markets.
In Q1 2024, revenue climbed 6% year over year to $25.2 million, although net income declined 15% to $12 million versus Q1 2023 due to the 305% increase in provision for mortgage losses to $3.8 million from a year ago. Its CEO, Rob Goodall, said it was a strong quarter and good start to 2024.
“We intend to remain diligent in managing the existing portfolio and continue to focus on our preferred sectors for new loan business,” added Goodall. Maintaining a defensive portfolio is a top priority. Atrium’s lending program targets lower-risk sectors during downturns but expects lower rates and easing inflation in the second half of 2024.
For risk-averse investors
Some yield-hungry investors will take positions in Yellow Pages and be okay with the risks. However, Headwater Exploration and Atrium Mortgage should attract more risk-averse investors because of their thriving businesses and the safety of dividends.
