Top-tier dividend stocks are often sought out by investors thinking long term, for a variety of reasons. Of course, there’s the passive income component of investing in dividend-paying stocks, which is front and centre for most investors. Then there’s the reality that companies which deliver higher than market yields often generate significant free cash flow and earnings, making such names fundamentally stronger than many similarly sized growth stocks.
Now, once we start pushing the high-single-digit territory on dividend yield, many investors become increasingly cautious. There’s good reason for this, with higher yields typically a signal sent by market participants that such distributions are at risk at some point down the line.
That said, there’s one company on my radar right now with a dividend yield of approximately 9% I think is worth buying right now.
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PHX Energy Services
I believe this is my first time covering PHX Energy Services (TSX: PHX), and some of that has to do with the company’s status as an under-the-radar name in the directional drilling and motor rental business.
This business has remained strong, allowing PHX to deliver strong capital appreciation in addition to its aforementioned 9% yield. Thus, investors who have held onto this stock over the past five years have likely done very well for themselves in their portfolio, depending on the overall portfolio structure employed.
Of course, there are risks with holding any high-yielding stock that are worth considering. Most notably, it’s the sustainability of PHX’s dividend yield that is worth diving into.
Let’s dive into why I think this is one particularly high-yielding stock that could be worth adding as part of the well-diversified speculative portion of one’s portfolio.
Why PHX compared to other high-yielding stocks?
With a dividend payout ratio that’s hovered historically between the 40% and 70% range in recent years (currently around 74%), this is a dividend yield that appears to be sustainable for the moment.
That’s because PHX continues to grow its EBITDA and revenue in a robust fashion. Earnings growth has followed, driven in part by stabilizing commodity prices and robust demand for drilling and operational services in the energy sector.
In other words, those looking for a high-yielding option to gain exposure to the energy sector have an excellent option to choose from in PHX, at least in my view. This is a company I’m seriously considering adding at this point.
