2 Risky Dividend Stocks to Avoid (and 2 Safe Ones)

Looking for dividend income? Here are two stocks to avoid and two stocks to readily buy for safe and steady income.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Canada is home to a surplus of dividend stocks. While there are many, not all dividend stocks are built the same. Canadian dividend stocks have a wide level of quality and sustainability. As a result, investors need to be choosey about the dividend stocks they own in their portfolio.

Some dividend stocks are facing serious balance sheet and business challenges. While they may have big yields, they are best avoided. Here are two dividend stocks to avoid and two to buy today.

BCE: Big dividend, but big risks

Created with Highcharts 11.4.3Bce PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

BCE (TSX:BCE) trades with a massive 9.2% dividend yield. Certainly, that yield looks appealing, but investors need to be cautious. That yield has only gotten larger as the stock has continuously dropped in 2024.

BCE is facing several headwinds. First, its balance sheet has ballooned with debt from aggressive infrastructure investments. Right now, its dividend is neither sustained by earnings nor free cash flow.

Second, increased competition is putting pressure on pricing across the telecom sector. Lastly, Canadian regulators have been pressuring for more competition and lower prices. This is making investment returns much lower.

Overall, the headwinds stack up. The risks are increasing that the dividend could be cut for this stock, and you don’t want to hold the bag when it does.

AQN: Still in turnaround mode

Created with Highcharts 11.4.3Algonquin Power & Utilities PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

Algonquin Power (TSX:AQN) was once considered a premium Canadian dividend stock. However, a string of bad investments and management hiccups have resulted in the stock declining 56% in the past three years.

Due to a weakening balance sheet with significant variable rate debt exposure, the company had to cut its dividend last year. Its yield has climbed back up to 7% today. To improve its balance sheet, the company has become a forced seller of assets. Several sale valuations have come below the market’s expectations.

Once it reorganizes, stabilizes, and finds a better strategy, this may be a decent dividend stock. Yet, I wouldn’t touch it until the turnaround is complete.

PPL: Safe and steady dividend stock

Created with Highcharts 11.4.3Pembina Pipeline PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

If you are looking for a steady and solid dividend stock, Pembina Pipeline (TSX:PPL) is an attractive option. It yields 5.5% today. Pembina is a major energy infrastructure provider in Western Canada. It provides crucial collection and egress pipelines, as well as a mix of midstream, storage, and export facilities.

Pembina’s dividend is protected by its contracted base of assets. These generate stable cash flow for the business. Strong free cash flow generation has helped Pembina maintain a very strong balance sheet.

As a result, it is in a good position to invest into new growth projects (including its recently announced Cedar LNG project). That growth could result in solid dividend growth in the coming years.

GRT.UN: A dividend stock with material upside (and nice yield)

Created with Highcharts 11.4.3Granite Real Estate Investment Trust PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

Granite Real Estate Investment Trust (TSX:GRT.UN) is a large industrial property owner across Canada, the United States, and Europe. Recent stock performance has been lacklustre. The stock is down 21% in the past three years. This has largely been due to the rapid rise in interest rates.

With that trend reversing (and rates dropping), Granite could enjoy a nice stock recovery. Granite has been delivering solid high single digit adjusted funds from operation (AFFO) growth over the past few years. Demand for high-end industrial real estate remains strong and is supporting good rental rate growth.

Granite has a market-leading balance sheet, and its monthly distribution is very sustainable. Today, it has a 4.8% distribution yield. This dividend stock trades at a large discount to its private market value. You may have to be a bit contrarian, but this stock could really reward in the next year or so.

Should you invest $1,000 in Fiera Capital Corporation right now?

Before you buy stock in Fiera Capital Corporation, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Fiera Capital Corporation wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Robin Brown has positions in Granite Real Estate Investment Trust. The Motley Fool recommends Granite Real Estate Investment Trust and Pembina Pipeline. The Motley Fool has a disclosure policy.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

A worker overlooks an oil refinery plant.
Dividend Stocks

3 High-Yield Canadian Stocks I’d Consider for a $5,000 Investment

These three dividend stocks are excellent additions to your portfolio, given their healthy cash flows and high yields.

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

How I’d Use My TFSA to Invest in Canadian Value Stocks for Long-Term Wealth

TFSA investors can mitigate bearish trends by shifting to value stocks that can deliver long-term wealth.

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Dividend Stocks

TFSA ‘Forever Holdings’: 4 Canadian Stocks for Sustained Tax-Free Growth

Add these four TSX dividend stocks to your self-directed TFSA portfolio to generate tax-free passive income for decades.

Read more »

Beware of bad investing advice.
Dividend Stocks

Where I’D Invest $1,000 in 3 No-Brainer Canadian Stocks Under $150

Want to invest $1,000 in some great stocks? Here's a trio that investors can buy at a discount right now…

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

The 1 Canadian Stock I’d Buy and Hold Forever in a TFSA

This Canadian stock is a strong option for any TFSA, and here's why.

Read more »

Man holds Canadian dollars in differing amounts
Dividend Stocks

Invest $25,000 in These Dividend Stocks for $1,267 in Annual Passive Income

Dividend stocks are strong options, but these two could be some of the best long-term options.

Read more »

investor looks at volatility chart
Dividend Stocks

I’m Adding This 12% Dividend Stock for a Recession-Resistant Portfolio

Despite boasting such a high dividend yield, this 12% dividend yield stock might be an excellent pick to build your…

Read more »

Make a choice, path to success, sign
Dividend Stocks

1 Undervalued TSX Stock Down 51% to Buy and Hold

This TSX stock plunged, but don't count it out, especially at these prices.

Read more »