While there are plenty of dividend stocks trading on the TSX, only a handful of these companies are good long-term investments. Investors must analyze the fundamentals of dividend-paying entities and avoid buying stocks just because they offer an attractive yield.
In addition to a dividend yield, it’s essential for companies to maintain payouts across business cycles. For instance, a company should generate enough cash flows to reinvest in growth, pay shareholders a dividend, and lower balance sheet debt.
One high-dividend TSX stock that has grossly underperformed the broader markets is Chemtrade Logistics Income Fund (TSX: CHE.UN). Valued at a market cap of $1.1 billion, Chemtrade Logistics pays shareholders an annual dividend of $0.66 per share, indicating a forward yield of 7.1%. However, the dividend stock has fallen over 55% in the last decade and generated negative returns since June 2014, even if we adjust for dividend reinvestments.
Chemtrade Logistics slashed its dividend during COVID-19
Chemtrade Logistics offers industrial chemicals and services in the Americas. It provides acid processing services and inorganic coagulants for water treatment, in addition to industrial services such as processing by-products and waste streams.
Part of cyclical industry, Chemtrade was forced to cut its monthly dividend payout by 50% from $0.1 per share in February 2020 to $0.05 per share in March 2020. Today, it has a monthly dividend payout of $0.055 per share.
Lower commodity prices in 2024 meant Chemtrade’s revenue of $418 million in the first quarter (Q1) of 2024 fell 11.2% year over year. Its distributable cash after capital expenditures fell 31.6% to $60 million, while the company paid roughly $19.3 million to shareholders via dividends, indicating a payout ratio of less than 33%. While the payout provides Chemtrade with financial flexibility, the stock is unlikely to deliver outsized gains to investors in the long term.
Analysts expect Chemtrade’s adjusted earnings to narrow from $1.52 per share in 2023 to $0.96 per share in 2024 and $0.87 per share in 2025. Instead, Canadians can consider investing in dividend-growth stocks such as Brookfield Asset Management (TSX: BAM).
Is BAM stock a good buy right now?
One of the largest alternate asset managers globally, Brookfield Asset Management offers shareholders a dividend yield of 4%. Despite a sluggish macro environment, Brookfield Asset Management raised US$20 billion in Q1 of 2024 and ended the quarter with US$100 billion of dry powder to invest, positioning the company to capture accretive investment opportunities.
Moreover, Brookfield completed a US$50 billion asset management mandate with American Equity Investment Life (AEL) and announced its intention to acquire a majority stake in Castlelake, an asset-backed finance company. These investments should help Brookfield enhance its insurance and private credit capabilities.
In the last 12 months, Brookfield Asset Management’s distributable earnings stood at US$2.28 billion, or US$1.36 per share. In the March quarter, it deployed US$11 billion of capital into investments across various quality businesses and assets, which should drive future cash flows and dividends higher.
In the last 12 months, BAM has raised its dividends by 18.9% year over year. Priced at 26 times forward earnings, Brookfield Asset Management stock trades at a cheap valuation as its earnings are forecast to grow by 15.5% annually in the next five years.
