Nothing against shares of high-yielding telecom titan Telus (TSX: T), but there is a great deal of risk that comes with going bottom-fishing, even if there is a high chance of locking in a historically swollen dividend yield. Of course, high risk typically means higher rewards, but if you’re not comfortable raising the risk profile on your portfolio, perhaps it’s best to settle for a slightly lower yield if it means getting more peaceful sleep at night.
Indeed, you don’t have to “max out” your yield, especially if you are content with steady annual dividend increases over time. For long-term investors, I’d argue it’s worth looking beyond Telus stock, even though the shares might be severely undervalued at these depths. The big question is what happens if the 9% yield turns into a 10% one after more selling pressure. Could such a double-digit yield really be sustainable over an extended period of time?
Though I view Telus’ dividend as durable, at least for the next 18 months, as the firm gets back on track, I do think that mounting headwinds and a return of negative momentum might put the payout on the ropes. For now, though, I think the dividend looks safer than its size would suggest. And if management can deliver and put in some gains for investors this year, perhaps Telus stock is the once-in-a-decade kind of dividend star to take advantage of while it’s down and out.
In any case, passive-income investors should aim to be more diversified. And in this piece, we’ll look at a dividend payer with some growth prospects as well.
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Brookfield Renewable Partners
Shares of renewable play Brookfield Renewable Partners (TSX: BEP.UN) look quite interesting right here at around $40 per share and not just because it has a big 5.1% dividend yield. The company stands to capitalize on a power boom driven by the ongoing AI data centre boom. More data centres mean more energy (preferably clean energy) will be needed. Of course, power production expansion can be quite capital-intensive. That said, I do think Brookfield’s intriguing capital “recycling” strategy could help the firm get a bigger bang for its buck without breaking the balance sheet.
Of course, the perfect mix of organic developments and recycling could be the key to stretching every investment dollar as far as it can go. With real cash-producing assets that can power capital gains and a yield that’s too good to ignore, I can’t help but be a huge fan of the name, even if it means paying a slight premium. In my view, paying up a bit for quality can be a smart long-term move.
What’s most enticing about this firm is that its growth profile has as much as $10 billion to be invested over the next five years or so. With some of the strongest managers out there and the potential to make smart M&A moves, I consider Brookfield Renewables to be one of the stealthier ways to play the data centre boom.
Sure, Telus is a great bet with its massive yield.
That said, Brookfield Renewables has secular tailwinds and a respectably sized yield. So, income investors should ask themselves: why not own both?
