Have you been building a dividend-focused self-directed portfolio but are not entirely happy with the returns on your investment? Picking high-quality dividend stocks for your portfolio might often seem like compromising on dividend yields because the underlying business cannot support the distributions.
Think about it: Would you want to place your bets on a company offering massive quarterly dividends without the fundamentals to sustain them? However, not all high-yielding dividend stocks are trash. It takes some due diligence to identify high-yielding dividend stocks that offer reliable distributions.
Today, we will take a look at two high-yield dividend stocks you can consider.
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Telus
Telus Corp. (TSX: T) is one of Canada’s Big Three telecom providers, boasting around a third of the total market share. The company enjoys a monopoly in communications in British Columbia and Alberta, providing landline phone, internet, and television services. The services it provides are essential to its customers, virtually guaranteeing the ability to make recurring revenues and keep growing its customer base. Its return on infrastructure spending generates significant profits, allowing it to pass them on to shareholders via quarterly dividends.
The company has been facing difficulties of late, as its returns from its infrastructure investments are not keeping pace with costs. Facing a heavy debt load, the telco is now considering selling non-core assets to pay it off. The company is increasing the services it offers to each customer in a bid to increase the average revenue per user, increase its market share, and reposition itself in the changing market. As of this writing, T stock trades for $22.02 per share and boasts a 7.6% dividend yield.
Whitecap Resources
Whitecap Resources Inc. (TSX: WCP) is a $13.1 billion market-cap company that engages in acquiring, developing, and producing crude oil and natural gas. The Calgary-headquartered Canadian oil and gas producer boasts one of the highest dividend yields in the Canadian energy sector, and it is one of the publicly traded companies paying investors each month. The possibility of high-yielding monthly dividend income makes it attractive enough alone.
The demand for energy is strong and expected to get stronger. While fossil fuels might eventually be phased out, the oil and gas sector expects to keep growing in the coming years. As of this writing, WCP stock trades for $10.65 per share, boasting a 6.9% annualized dividend yield that it pays each month. Analysts see an almost 25% upside based on consensus price targets. It might be a good idea to invest in its shares before the dividend yield becomes deflated.
Foolish takeaway
Yes, both dividend stocks have their risks. While a defensive business, Telus has its share of debt and a capital-intensive business model that can weigh on its margins. While it is improving efficiencies and cost control, Whitecap Resources operates in a cyclical industry with commodity prices changing at a moment’s notice. However, both have solid underlying businesses that can sustain high-yielding dividends.
Granted, I would not allocate my entire investment capital to these two stocks. However, I would consider allotting a portion of it to boost my dividend income.
