When investing in high-dividend stocks on the TSX, the goal is not just to find high yields. It’s also to ensure those dividends are sustainable and likely to grow over time. Many investors are drawn to stocks offering eye-catching payouts, but without a solid foundation, those dividends can be cut, leaving investors with lower income and a declining stock price.
The key to long-term success in dividend investing is finding companies that balance strong financials, earnings growth, and a commitment to returning capital to shareholders. Companies that consistently raise dividends often have strong business models, stable cash flows, and a management team focused on rewarding investors while reinvesting for future growth.
Source: Getty Images
LIF stock
Labrador Iron Ore Royalty (TSX: LIF) is a standout in the TSX’s high-yield dividend space. The dividend stock operates as a royalty business, meaning it earns revenue from the Iron Ore Company of Canada’s operations without the direct costs and risks associated with mining. This model provides steady cash flow and allows LIF to maintain a strong dividend yield.
With a trailing annual dividend yield of 8.8% and a five-year average of 9.7%, it has been a consistent source of income for investors. However, its earnings can fluctuate with iron ore prices. In its most recent quarter, LIF reported revenue of $205.5 million but saw a year-over-year decline in earnings, with net income falling 32%. While this may raise concerns, its strong balance sheet, with no reported debt and a solid current ratio of 1.5, provides reassurance that it can sustain dividends even during downturns.
Tourmaline stock
Tourmaline Oil (TSX: TOU) is another compelling option for dividend investors, especially those interested in the energy sector. Tourmaline is Canada’s largest natural gas producer, benefiting from economies of scale and efficient operations. The dividend stock has a forward annual dividend yield of 2.1%. Yet what makes it particularly attractive is its history of special dividends.
With strong profitability, an operating margin of 52.7%, and a return on equity of 11.5%, Tourmaline generates substantial cash flow, allowing it to increase shareholder returns. In its latest earnings, the dividend stock posted quarterly revenue of $4.5 billion, with earnings per share of $4.43, reflecting a 29.3% year-over-year increase. This growth is a strong indicator that Tourmaline is well-positioned to continue rewarding shareholders while investing in long-term expansion.
Foolish takeaway
Labrador Iron Ore Royalty Corporation and Tourmaline Oil offer two different but equally compelling dividend investment opportunities. LIF provides stability through its royalty model, ensuring a steady income stream with minimal operational risk. However, it remains tied to iron ore price movements, which can impact earnings and payouts.
On the other hand, Tourmaline operates in the volatile energy sector but has managed to maintain strong financials and reward investors with a mix of base and special dividends. Its focus on efficient production and strategic acquisitions, like its recent deal for Crew Energy, strengthens its future growth potential.
For Canadian investors seeking high-dividend stocks with increasing payouts, the key is to find companies with strong financials, reasonable payout ratios, stable earnings, and a commitment to shareholder returns. While LIF and TOU fit these criteria, it’s always important to assess personal risk tolerance and portfolio diversification when selecting stocks. Understanding the nuances of each company’s business model and market conditions will help ensure long-term success in dividend investing.
