High-yield dividend stocks are especially compelling to dividend investors when interest rates are low and getting a decent yield seems impossible. But when venturing into this world of high-yield stocks, we must be aware of the risks. By definition, a higher yield comes with higher risk.
Personally, I always like to analyze these dividend stocks to uncover whether the perception of risk is greater than the reality. If it is, then I’ll take the leap and buy the shares and if it’s accurate, I’ll happily pass. But this is by no means an easy task, but it’s one that’s worth the effort. In this article, I’ll review two high-yielding stocks, Telus Corp. (TSX: T) and Timbercreek Financial Corp. (TSX: TF). These stocks are yielding 8.3% and 10.3% respectively, and they have my attention.
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Telus
Let’s tackle Telus first, one of Canada’s leading telecommunications companies that has run into some trouble in recent years. These troubles have come more from the telecom industry’s issues than the company itself, and they in no way reflect on Telus’ handling of things.
As you know, the telecom industry has been dealt a few blows in recent years. The most significant was the government’s ruling that has essentially heightened competition, which has driven fees, and ultimately profits, lower. As you can see from Telus’ stock price chart below, this has hit the stock, which has driven its dividend yield higher – to the current 8.3%.
Yet, over at Telus, things are not so bad – not to the point of counting it out. Yes, the company’s net income has declined over the last five years, but its operating cash flow has increased 6% to $4.9 billion in 2024. And, Telus has an impressive dividend track record. In the last 10 years, its annual dividend has grown almost 90% to $1.66 – that’s a compound annual growth rate (CAGR) of 6.6%.
And Telus has invested in really interesting, high-growth businesses that I think will introduce investors to renewed growth. Like Telus Health, for example, which is growing rapidly. In the latest quarter, revenue at Telus Health increased 18% and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 24%. Also, Telus has been working on its artificial intelligence capabilities and this will be critical to the company’s success. According to management, this segment will bring in $800 million in revenue in 2025, which will increase to $2 billion by 2028.
Timbercreek Financial
As a Canadian non-bank commercial real estate lender that provides shorter-duration, structured financing solutions to commercial real estate investors, Timbercreek has impressively held its dividend constant since 2017. It survived the difficult pandemic days and numerous macroeconomic headwinds to consistently deliver its distribution to investors.
Today, Timbercreek continues to experience difficulties because of continued difficulties in the real estate market. In its latest quarter, the company reported $14.1 million in distributable income, slightly lower than in the same period last year. The weak quarter was driven by the revaluation of certain real estate assets, which resulted in an increase of $5.9 million in expected credit losses.
While the company believes that the macro environment in real estate markets is improving, it feels like its dividend may ultimately be at risk. The stock is currently trading below book value. Yet, given the risk of defaults and the still very uncertain economic environment, I’m not comfortable with this stock. I appreciate the more than 10% yield, but in my view, the risk/reward relationship involved here is not favourable.
The bottom line
In closing, I would like to reiterate that I believe that Telus stock offers a compelling opportunity for dividend investors to capture some yield. On the contrary, I believe that Timbercreek has a little too much risk, and I would pass on it despite its very tempting 10%-plus yield.
