Going after stocks or ETFs (Exchange Traded Funds) with yields north of 7% certainly breaks the so-called “4% rule” in a massive way. That said, I don’t necessarily think it’s a bad thing to give your passive income portfolio a nice boost with some plays, provided you’re punching your ticket on a stock that has a relatively well-covered yield and isn’t experiencing a generational free-fall with no clear recovery plan.
In any case, there are ways to get a 7% yield without having to risk a dividend cut and a potential crash that tends to follow. In this piece, we’ll look at one stock and an ETF that I think can be depended upon for income investors seeking to give themselves a raise. As always, ensure your portfolio is well-diversified and not overly-exposed to the 7%-yielders that are either riskier or lacking in terms of growth prospects.
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Telus
No surprises here. Telecom firm Telus (TSX: T) is perhaps Canada’s most popular dividend yield, with a yield of over 7%. Today, the yield sits at 7.4% after enjoying an increase just a few months ago.
The stock is up more than 15% from its multi-year lows, but since the summer began, the name has really started to stall. Indeed, the question on the minds of income investors is whether the latest flatlining in shares will come ahead of a leg higher or lower. Personally, I think Telus has done a great job of shielding its payout from the headwinds facing Canada’s telecom industry.
As the firm makes moves to cut costs and unlock efficiencies, there’s room to shore up capital to cover that rich dividend. And while I’d much rather buy Telus stock in the midst of a rally than at close to multi-year lows, doing so probably wouldn’t allow one to land a 7.4% yield. Telus has been a dividend darling for such a long time. And, in some ways, it still is, with a dependable dividend that’s still growing in spite of recent pressures facing the business.
If shares sink again and Telus yields 8% again, perhaps it’ll buy time to load up, as the firm seems poised to keep hiking its payout for years to come. Indeed, are we near a bottom in the name? Nobody knows. But every dip lower means the yield will swell by that much more, drawing in Canadian income investors from around the country.
BMO Covered Call Utilities ETF
Up next, we have the BMO Covered Call Utilities ETF (TSX: ZWU), which combines the best of both worlds for defensive income investors looking to shelter from the next inevitable market plunge. The ZWU incorporates a covered call strategy, which adds premium income from the sales of call options.
This may limit upside, but for the yield boost, I think it’s a good trade-off going into the midpoint of the third quarter. The 7.6% is enticing but could be subject to fluctuations, given the nature of covered call ETFs. In any case, the 0.6 beta is low enough that the ETF stands out as a great way to batten down the hatches. So, if you seek a more diversified way to score a yield of more than 7%, look no further than the name.
