Are you looking to buy high-yielding dividend stocks?
If so, you’ll find plenty of them on the Toronto Stock Exchange (TSX) index.
Canadian markets feature many beaten-down names, as well as sectors that are traditionally known for high yields, such as real estate investment trusts (REITs) and master limited partnerships (MLPs).
The highest-yielding stocks aren’t always the overall best stocks. In many cases, they are the shares of low quality enterprises that have been beaten down for a reason. Nevertheless, some ultra-high-yielders are worth owning. In this article, I share three of the highest-yielding dividend stocks on the TSX, so you can decide whether or not they are good fits for your portfolio.
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Enbridge
Enbridge (TSX: ENB) is a Canadian midstream energy company whose shares yield 5.2%. That might not sound like a whole lot, but it is likely the highest yield among mega cap TSX stocks today. Accordingly, Enbridge merits a place on this list.
Why does Enbridge have such a high yield?
It’s certainly not due to it having been beaten down in the markets: ENB stock is up 22% over the last 12 months and 65% over the last five years.
It might simply be because the company pays such a high percentage of its earnings as dividends. In the trailing 12-month period, the percentage was 91% (i.e., the company had a 91% payout ratio). This means that the company has little in the way of retained earnings, doesn’t have a whole lot of organic growth potential, and has to borrow heavily in order to grow. These factors could contribute to Enbridge’s high dividend yield.
Acadian Timber
Acadian Timber Corp (TSX: ADN) is a Canadian timber stock that has been paying a steady dividend of $0.29 per quarter for many years now. These $0.29 dividends sum to $1.16 per year, giving ADN a 6.9% yield at today’s price.
Why does Acadian Timber have such a high yield?
At least part of the situation is similar to that with Enbridge.
ADN is a “landlord” that owns timberland. Loggers rent the land from ADN, paying it stable cash flows. The company then passes a very high percentage of the dividends on to shareholders. The end result is a company that is very stable, but not exactly growing like wildfire.
Companies like this, whose dividends are a key part of the investment thesis, usually trade at low multiples because of their low growth potential.
Decisive dividend
Last on our list is a name you’ve likely never heard of before: Decisive Dividend Corp (TSXV: DE). It is a diversified holding company whose shares yield 6.8%. This is likely one of the highest yields of all TSX common stocks, with higher ones being found most likely in obscure ownership structures such as MLPs.
Decisive Dividend’s Raison’ D’etre is acquiring and running high quality businesses. Examples of businesses in its portfolio include Techbelt, a conveyor belt company, and ACR Heat Products, which sells woodstoves. These may not be big name companies, but they do steady, consistent business – enough to supply the cash flows that DE pays out as distributions.
Foolish takeaway
The bottom line on high yield stocks is that you should buy them only if their fundamentals are suitable to you. Chasing yield will often leave you with lower total returns than no or low-yield investing. High yield stocks aren’t always so great. But as the three in this article demonstrate, their payouts can in fact get quite high.
