When it comes to dividend investing, it’s no secret that the goal of many investors is to maximize income and look for the best high-yield stocks to buy.
That inherently makes a lot of sense since yield is obviously important if your goal is to generate passive income. However, as attractive as high-yield stocks can look on the surface, yield is far from the only thing that matters.
In fact, some of the highest-yielding stocks on the market can actually be the riskiest if the underlying business isn’t strong enough to support the payout.
Furthermore, even high-yield stocks that can sustain their dividends often offer little or no dividend growth potential over the long run.
So, while these stocks can help boost your portfolio’s overall yield, they typically need to be complemented by lower-yield, higher-growth dividend stocks as well.
High-yield stocks can certainly still play a role. They just can’t be the only dividend stocks you look to buy, and it’s essential that sustainability is the top priority, not simply the size of the yield.
With that said, when looking for high-yield stocks, the best long-term investments that you can actually have confidence holding for years are companies with predictable revenue streams, stable business models, and structures specifically designed to return cash to shareholders.
That’s why some of the most attractive income investments on the TSX are royalty businesses. So, if you’re looking for high-yield dividend stocks that can generate steady income for years, here are two of the best to buy and hold for the long haul.
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One of the best high-yield dividend stocks that Canadian investors can buy
If you’re a dividend investor looking for a reliable high-yield royalty stock that you can buy and hold with confidence, there’s no question that Pizza Pizza Royalty (TSX: PZA) is one of the best.
In fact, Pizza Pizza is one of the more straightforward dividend stocks on the entire TSX.
Its business model is extremely simple since it doesn’t operate restaurants directly. Instead, it collects royalty payments from its hundreds of Pizza Pizza and Pizza 73 locations across Canada.
That structure is important because it creates a predictable revenue stream. Pizza is a relatively affordable meal option, and demand tends to remain fairly stable even during periods of economic uncertainty. And that’s crucial for investors, because as long as its restaurants continue generating sales, Pizza Pizza Royalty continues collecting its share.
One of the biggest reasons why it’s so ideal for dividend investors, though, is that it has minimal operating costs compared to traditional restaurant operators. Therefore, since it doesn’t manage day-to-day restaurant operations, essentially all of the cash it collects, minus taxes, is returned to investors.
So, if you’re looking for a reliable high-yield dividend stock to buy now and hold for years to come, Pizza Pizza currently offers a yield of 5.8% and is unquestionably a top choice.
A reliable royalty company with a yield of more than 6.9%
In addition to Pizza Pizza, another high-quality and reliable high-yield dividend stock to buy and hold for the long haul is Diversified Royalty Corp (TSX: DIV).
Diversified Royalty is similar to Pizza Pizza in many ways. However, it takes the royalty model one step further by owning royalties across multiple brands and industries.
So, while Pizza Pizza offers advantages because it’s tied to one of the best-known quick service restaurants in Canada and is a reliable business that’s proven to be defensive during economic slowdowns, Diversified Royalty collects royalties from several different well-known brands.
That’s why Diversified Royalty is another of the best high-yield dividend stocks to buy and hold for the long term. It continues to find new royalty partners and diversify its revenue base, which helps stabilize cash flow and reduce reliance on any single brand or sector. So instead of being exposed to just one royalty stream, your dividend comes from a portfolio of them.
Furthermore, over the long haul, Diversified Royalty offers slightly more dividend growth potential than Pizza Pizza. For example, on top of the 6.9% yield it offers today, its dividend has increased by over 30% in just the last five years.
So, if you’re looking for high-yield dividend stocks that you can buy and hold with confidence, Diversified Royalty is one of the best on the TSX.
