It’s getting harder to come by a durable, high-quality 7% yield these days. But, believe it or not, they’re still out, even as the TSX Index continues making new highs on the regular. Of course, higher yields tend to accompany greater risks, especially if the stock chart isn’t looking so great. That said, I think there’s deep value to be had with some of these fallen dividend plays, especially the ones that tend to have high yields by design (think yields of 5% or more). In this piece, we’ll check in on two names with yields over 7% that I view as having well-supported payouts that have the means to grow over the long run.
And while growth may be limited, given the sheer amount of cash being returned to investors in the form of a dividend or distribution, I find current valuations to be conducive to a total return that’s at least in line with the market averages. Indeed, low-cost dividend plays may not be what’s “in” these days. But they’re worth a good look, whether you’re a passive-income seeker or just someone who wants an opportunity to pay three quarters for a whole loonie, so to speak, in a market where some new investors may be becoming comfortable with paying any price for a stock that’s got a good amount of upside momentum.
Let’s start with a steady REIT (real estate investment trust) that’s suitable for a TFSA (Tax-Free Savings Account) and then shift our focus to a hard-hit stock that risk-tolerant deep-value investors may find appealing.
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SmartCentres
SmartCentres REIT (TSX: SRU.UN) seldom makes the headlines, given it’s a steady REIT that’s paid investors handsome distributions on schedule, with less in the way of surprises in any given quarter.
When it comes to SmartCentres REIT, it’s a well-run retail REIT that’s good to get a big boost as its residential projects come online while interest rates look to fall further. Indeed, the Bank of Canada may or may not keep slashing rates. Either way, SmartCentres looks poised to keep doing well and paying that 6.9% (it’s not quite 7%, but one bad day could nudge it back above the mark).
Perhaps the biggest reason to stick with the top Canadian strip mall REIT is its large anchor tenant, Walmart Canada, which can thrive in both times of economic expansion and contraction. Given that SmartCentres houses one of the world’s largest consumer staples, I’d argue that shares should command an even heftier premium, given the stability of cash flows. The name has been my favourite REIT all year and I hope to continue adding to my already sizeable position, perhaps once the yield is comfortably north of 7% again.
Telus
Telus (TSX: T) stock is a telecom laggard, but for how much longer? Calling a bottom is hard whenever there is a lack of industry catalysts. Still, I think Telus’s valuation is low enough that it may be safe for long-term investors to start building a position. The 7.32% yield isn’t just intact, it’s continuing to grow.
And until Telus’s rivals get the better of it by taking a growing chunk of its wireless market share, I don’t see the dividend going anywhere. While T stock may be grounded in the low-$20 range, I’d not be afraid to think about stepping in as a contrarian right here, given all that there is to gain by punching a ticket to what I still believe is a high-quality company and one of the TSX Index’s most prominent cash cows. I’ve pounded the table on T stock in a number of prior pieces, and I’m not ready to back down just yet. Not while investors overlook the bountiful payout that, I think, has already proven incredibly durable.
