For Canadian income investors seeking to give themselves a bit of a raise, without having to drastically increase their risk of walking right into a dividend cut, there are some intriguing plays on the TSX Index that might be worth careful consideration. Undoubtedly, chasing high-yielders can come at the cost of growth (less in the way of capital gains) or less dividend appreciation in the future. That said, for those with income needs, it might be a worthy trade-off to make.
In any case, this piece will highlight two ways that an income investor can give their dividend portfolios a bit of a boost. As always, each name accompanies its own slate of risks, so ensure to put in the homework and consider the risk/reward trade-off.
Telus
First up, we have shares of Telus (TSX: T), which are probably on the radars of income investors by now. Undoubtedly, the yield has climbed so much amid the drawdown that it’s not hard to imagine that U.S. investors might wish to punch their ticket to the Canadian telecom, especially as the U.S. dollar sinks and the hunt for yield gets tougher with every additional interest rate hike from the Federal Reserve (the Fed).
In any case, the 9.6% is tempting, to say the least, and it’s not all too big a deal if the payout doesn’t grow in the next couple of years, as Telus looks to reinvest in its turnaround efforts. With potential upside from AI integration and a realistic free cash flow growth target it can hit, I do think the dividend might be steadier than its size suggests! Is it a heavy weight for Telus to shoulder?
Sure, but it has a plan, and I do think management can execute. Add the $500 million share repurchase program in place, and I do think insiders have confidence that the stock is deeply undervalued while it’s well below $20 per share. In short, I think Telus has a lot going for it in the next three years or so. The 9.6% yield may be too good to be true, but, then again, if Telus makes good on its initiatives, the dividend might survive.
BMO Covered Call Utilities ETF
Up next, we have a sector-covered call ETF in the BMO Covered Call Utilities ETF (TSX: ZWU), which currently commands a yield of 7.4%. Undoubtedly, covered call ETFs won’t be for everyone, especially those who value appreciation more than upfront yield. However, if you’re looking for a more defensive way to play the market, less volatility, and a huge income boost, the ZWU stands tall in this environment.
As long as you don’t have high expectations for big gains, the ZWU stands out as one of the most compelling yield boosters in the Canadian ETF space today. The only thing better than the yield boost? The low correlation to the broad market.
With a 0.47 beta, the ETF also has a higher chance of being unmoved if an AI pullback were to really rock global financial markets. If you’re fine with paying a higher management expense ratio (MER) and need income above all else, the name might be well worth the price of admission.
