The Canadian cash cows offer plenty of dividends (or distributions for REITs) for investors looking to supplement their passive income streams today. Indeed, it’s tempting to bet on the growth stocks that promise ample appreciation and cash flows in the distant future. However, there’s a degree of risk associated with betting on the growth companies that have to spend a great deal on R&D to stay competitive.
Whether we’re talking about AI, the metaverse, or some other technology, it can be tricky to pick the winners and losers. With firms generating ample sums of cash in the present, you can collect generous payouts in the near term. And better yet, you won’t need to run the risk of overpaying for shares, especially in this environment.
Let’s look at two impressive cash cows with swollen yields and the means to increase their payouts gradually over time, even if Canada’s economy slips into a bit of a mild recession at some point over the next year or so.
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Enbridge
It did not take long for shares of midstream energy company Enbridge (TSX: ENB) to start moving higher again. Indeed, the entire pipeline scene has been a rather volatile place to invest in recent years. However, now that rates are coming down and investors are piling into the mega yielders, ENB stock seems to be in a bit of a sweet spot. The stock’s in rally mode, and the dividend, while a heck of a lot smaller than it was just a few weeks ago, is still very rich compared to rates on bonds and GICs.
Sure, a 6.5% dividend yield isn’t as impressive as it used to be. However, it’s worth remembering that Enbridge has continued to raise its payout, even in the face of major industry question marks. As the company continues posting strong financial results while seizing opportunities in the space, it’s likely just a matter of time before ENB stock has a chance to hit new highs again.
At 21.3 times trailing price-to-earnings, the stock is still fairly valued. Though I’d be inclined to be a more aggressive buyer on a pullback, I’m not against picking up a few shares here while they’re hot.
CT REIT
CT REIT (TSX: CRT.UN) is a retail REIT that’s also been on the ascent in recent months, thanks largely to Bank of Canada rate cuts. With more such cuts on the way and very stable cash flows coming from its retail properties, CT REIT seems like a timely buy on the way up at north of $16 per share.
Of course, the retail REIT is not too well diversified, given its massive exposure to Canadian retailer Canadian Tire (TSX: CTC.A). In essence, CT REIT leans very heavily on the retail juggernaut. And if Canadian Tire can’t afford to pay its rent, CRT.UN shareholders could find themselves on the receiving end of a very hefty distribution cut.
That said, such a scenario seems extremely unlikely, even if the economy were to face a hard landing. Canadian Tire has a solid balance sheet and a growing number of goods (like pet food and party supplies) that can sell well when times are a bit tougher. Though Canadian Tire is a discretionary, CT REIT stands out as more of a staple.
Personally, I think the overexposure to Canadian Tire is a good thing. At times, diversification may not add much value to the table. I’d much rather own the REIT behind one legendary (and highly liquid) Canadian retailer than one that houses a slew of less-than-stellar retailers, some of which may close up shop in a recessionary scenario. At writing, shares yield 5.8%.
