When it comes to dividend investing, choosing the right stock can make all the difference between stable income and risky returns. Chemtrade Logistics (TSX:CHE.UN) and Brookfield Renewable Partners (TSX:BEP.UN) are two dividend-paying stocks on the TSX. Yet they couldn’t be more different. Let’s dive into why Chemtrade might be one to avoid and why Brookfield Renewable could be a solid long-term option.
Source: Getty Images
Why not Chemtrade
Chemtrade has long attracted income-seeking investors with its hefty dividend. Currently, the dividend stock offers a forward annual yield of about 6%, which may seem tempting. However, beneath that yield lies some red flags. For starters, Chemtrade has faced a significant revenue decline, with a 4.7% drop year-over-year in the most recent quarter. Its earnings have also struggled, with an 83.3% dip in quarterly earnings growth. These trends raise questions about how sustainable the dividend truly is.
On the other hand, Brookfield Renewable has positioned itself as a leader in the renewable energy space, which is a booming sector. With a solid 4.9% forward annual dividend yield, Brookfield Renewable provides a respectable income while also offering growth potential. Its recent earnings show a 23% increase in quarterly revenue, thus signalling the strength of its underlying business. Management has demonstrated effectiveness in adapting to the evolving energy market.
Balancing act
One major concern with Chemtrade is its balance sheet. The dividend stock is saddled with a significant amount of debt, over $952 million, and its total debt-to-equity ratio is a worrying 128%. This high level of leverage leaves little room for error and could make dividend payouts vulnerable if Chemtrade encounters more financial strain. In contrast, Brookfield Renewable has a large market cap of over $11 billion and a more manageable debt load. Its total debt-to-equity ratio is much lower at 107%, reflecting a more stable financial footing.
The management team also sets these two companies apart. Chemtrade’s leadership has been focusing on managing its debt and operational challenges. Yet the company’s overall strategy seems reactive rather than forward-looking. In contrast, Brookfield Renewable’s management is more proactive, positioning itself for the future by acquiring key renewable assets and expanding its global footprint, thusly making it a leader in the green energy space.
Is the dividend safe?
Future outlooks for both companies are worlds apart. Chemtrade, operating in a cyclical and often volatile sector, may struggle with its long-term growth prospects. Brookfield Renewable, however, benefits from the global push towards clean energy, positioning it for significant growth as governments and corporations move towards carbon neutrality. Investing in Brookfield Renewable not only offers income. It also provides exposure to one of the most promising sectors of the future.
Chemtrade’s dividend history is another area of concern. While the company has been able to maintain its payout recently, its five-year average dividend yield of 9.7% shows a pattern of high yield but also high risk. In contrast, Brookfield Renewable has consistently grown its dividend over time and has a more sustainable payout ratio. Thus, investors can rely on it for income without sacrificing long-term growth.
Bottom line
Altogether, while Chemtrade might seem like an attractive option for its high dividend yield, the underlying financials and future prospects suggest otherwise. Brookfield Renewable, with its strong earnings, proactive management, and future growth potential in renewables is a much safer and smarter dividend stock – especially for long-term dividend investors looking for both income and capital appreciation.
