In today’s falling interest rate environment, finding a respectable yield for our investments has gotten increasingly difficult. While the yield on a guaranteed investment certificate, or GIC, was acceptable last year, things are different today. This makes finding the right high-yield dividend stocks all the more important.
Here are three.
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Enbridge: A stock with a 6.1% dividend yield
Enbridge Inc. (TSX: ENB) is one of North America’s leading energy infrastructure giants. The company boasts a diversified list of assets, including natural gas and liquids pipelines as well as renewable energy infrastructure such as wind farms and solar energy operations.
One thing seems like a given when it comes to Enbridge and its stock. This is that the company will be around for many years to come as demand for energy keeps growing. With this, we can expect that Enbridge will continue to meet this demand through both conventional and unconventional sources.
So, let’s talk about the dividend. The thing I like best about Enbridge is the safety of its business model, and thus, its dividend. Simply put, Enbridge’s business is defensive and predictable. The business is defensive for obvious reasons – we need energy to live and thrive in any economic climate.
It’s also defensive and predictable because of a couple more factors. First of all, 98% of the company’s cash flow generated is from long-term, cost-of-service or take-or-pay contracts. Cost-of-service contracts are contracts that charge the client for the actual cost of the service plus an additional percentage. A take-or-pay contract is an agreement for future purchases. With this agreement, the buyer takes the product or pays a penalty to the supplier if they don’t.
Secondly, Enbridge’s low-risk business model is also reflected in the fact that its customer base is 95% investment grade, and 80% of its earnings before interest, taxes, and depreciation is inflation-protected. All of this makes Enbridge stock and its dividend highly reliable.
Northland Power: Yielding 5.9%
Northland Power Inc. (TSX: NPI) is a renewable energy company with clean-burning natural gas, wind, and solar assets in different continents of the world, such as North America and Europe. While fossil fuels continue to be relied upon heavily for our energy needs, the shift toward renewable energy continues.
This is where renewable companies like Northland Power come in. Northland has a strong history of expanding its presence in the renewables space. The company generated $2.2 billion in revenue in 2023, with adjusted earnings before interest, taxes, and depreciation/amortization (EBITDA) of $1.2 billion.
Looking ahead, Northland has a number of projects that are nearing completion. These projects are fully funded and with expected completion dates fast-approaching, we should see a big ramp up in earnings and cash flow in the coming years.
Northwest Healthcare REIT: A 7.2% dividend yield
Finally, the last high-yield dividend stock I’d like to highlight is Northwest Healthcare Properties REIT (TSX:NWH.UN). Northwest has a portfolio of healthcare assets and medical office buildings that are defensive in their nature.
This is because these assets are characterized by long leases that are inflation-indexed. This makes the cash flow profile of these assets quite stable and predictable. In Northwest’s case, its weighted average lease expiry is currently 13.2 years and 84% of the leases are subject to rent indexation.
Today, Northwest is yielding a very generous 7.2%. As the company continues to improve its balance sheet, it should increasingly benefit from the stable and predictable cash flows that come from its assets.
The bottom line
All of the high-yield dividend stocks discussed in this article are benefitting from strong secular trends. In addition to this, they are all in capital-intensive industries, which means that they stand to benefit from the lower interest rate environment. A lower cost of capital increases the returns of these heavily indebted companies.
