Markets continue to hit new highs. As a result, dividend stocks are becoming increasingly attractive. When markets are at risk, there is no better way to reduce volatility and risk than to invest heavily in dividend stocks. This is because dividend payments regularly put money back in investors’ pockets, effectively recouping the investment little by little.
So, if you want to lock in a solid dividend, here are three stocks to buy now.
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Labrador Iron Ore Royalty Corp : A 9.5% dividend yield
The income of Labrador Iron Ore Royalty Corp. (TSX: LIF) is entirely dependent on the Iron Ore Company of Canada (IOC) – Canada’s largest iron ore producer. IOC owns mining leases and licenses covering 18,200 hectares of land near Labrador City, from which Labrador Iron Ore Royalty collects a 7% royalty.
Today, the stock is yielding a very generous 9.5%. After years of strong iron ore prices and premiums, we are now seeing the opposite dynamic. In fact, the price of iron ore is significantly lower than in 2021, having fallen by approximately 50% since then. The fall has been driven by weakening steel demand in China as well as strong growth in iron ore supply.
As a result of this, Labrador Iron Ore’s dividend was reduced. We are clearly in the down cycle of the iron ore market. Economic weakness and concerns for the future will continue to negatively affect the market in the short term.
So now the question is whether Labrador Iron Ore’s dividend is safe. In the last 10 years, the company has easily paid its regular dividend plus special dividends when the business was doing well. In the first nine months of 2024, net income increased 6.1% to $143.1 million and adjusted cash flow increased 11% to $145.8 million.
IOC has a strong position in its industry, with a strong quality product that commands a premium. Also, iron ore is used primarily in the production of steel, which is essential to industrial economies. It is for these reasons that we can view Labrador’s dividend as reliable.
Freehold Royalties: Yielding 7.7%
As another royalty company, Freehold Royalties Ltd. (TSX: FRU) also has a favourable position in that it’s also sheltered from rising costs.
Freehold is currently yielding a very generous 7.7%. In the last three years, Freehold’s annual dividend has increased 500% to $0.36 per share. The dividend is paid monthly, and in fact, Freehold has been paying a dividend for two decades.
The price of oil remains high, at approximately $70, and this bodes well for Freehold’s financial position. In fact, while revenue is being hit as oil prices are creeping lower, $70 is still a very profitable oil price. The company is easily covering its dividend payments, with a payout ratio of 73% in its latest quarter (Q3/2024).
Telus stock: 7.4%
Canada’s unique telecommunications giant, Telus Corp. (TSX: T), is currently yielding 7.4%. It’s a dividend that’s been growing rapidly and that is easily covered by cash flows. Although the payout ratio is 150%, Telus stock’s dividend represents only 40% of cash flow.
Since 2019, Telus has grown its annual revenue by 37% to more than $20 billion in 2023. This growth has also been accompanied by a healthy 38% dividend growth rate since 2019.
In its latest quarter (Q3/24), Telus posted a 9.6% increase in its operating cash flow and a 12% increase in its adjusted earnings per share (EPS). This strong result was driven by the company’s drive to lower costs as well as a steady rise in revenue, reflecting strong demand.
As a result of the strong quarter, Telus stock’s dividend increased by another 7%. It’s 38% higher than five years ago and 29% higher than three years ago. The dividend is backed by a strong balance sheet and steady growth.
