Should You Buy the 3 Highest-Paying Dividend Stocks in the TSX Composite?

As interest rates start to decline, income-focused investors in Canada are increasingly looking to high-dividend stocks as a more attractive investment option to other income sources, especially as these stocks could provide both regular income and potential for capital appreciation. In this article, I’ll highlight the top three highest-paying dividend stocks on the TSX Composite and discuss whether you should consider buying them right now, given the market’s volatility.

Three highest-paying dividend stocks on the TSX Composite

Parex Resources (TSX: PXT) currently tops the list of highest-paying dividend stocks on the TSX Composite with a strong annualized dividend yield of 12.9%. If you don’t know it already, it is a Calgary-based independent oil and gas firm with a market cap of $1.2 billion as its stock trades at $11.95 per share. After rallying by around 24% in 2023, PXT stock has tanked by 52% so far in 2024, taking its dividend yield to elevated levels.

Lower-than-expected production from its Arauca field and temporary operational setbacks in the Northern Llanos region have hurt Parex’s financial growth in recent quarters, which could be the primary reason why its share prices have fallen sharply. Although Parex continues to return capital to shareholders with regular dividends and share buybacks, the underperformance at Arauca raises questions about the sustainability of these payouts, especially if production issues persist or oil prices decline.

Superior Plus (TSX: SPB) is another high-yield stock on the TSX Composite, offering an annualized dividend yield of 9.5%. This Toronto-based company primarily focuses on the distribution of propane and related products across North America. Just like Parex, Superior Plus has also faced a sharp decline in its revenue and earnings so far in 2024 due mainly to warmer weather in the U.S., which impacted propane volumes and increased competition in certain markets like West Texas.

The third stock in our list of highest-paying dividend stocks is Allied Properties REIT (TSX: AP.UN), which currently offers an annualized dividend yield of around 9%. This open-ended REIT (real estate investment trust), which focuses on distinctive urban workspaces in Canada’s largest cities, posted positive YoY (year-over-year) revenue growth in the first half of 2024. However, Allied Properties REIT has faced challenges due to its recent portfolio optimization transactions, which temporarily pressured its funds from operations last quarter. Nevertheless, its strong leasing momentum, resilient rental growth, and portfolio optimization efforts brighten its long-term growth outlook.

Should you buy these highest-paying dividend stocks right now?

That said, high dividend yields can be attractive, but investors should still be cautious. A high dividend yield often reflects a falling share price, which may indicate underlying issues. For example, Parex Resources and Superior Plus are facing challenges, Parex with production issues and Superior with weaker sales due to warmer weather and competition. This might put their dividend sustainability at risk.

Allied Properties REIT, however, could be a more stable option. Its focus on prime urban workspaces and strong leasing performance makes it a better long-term pick for investors looking for a high-paying TSX dividend stock. Allied is also optimizing its portfolio and reducing debt, which could accelerate its financial growth further in the long run.