High yielding Canadian dividend stocks. It doesn’t get any easier on the passive income front.
In fact, lots of investors in retirement are simply living off their dividend payments, keeping the principle of their investment portfolio intact.
Now, I’m not one to suggest an investor go out and find the top high yielding dividend stocks here in Canada and buy all of them. There’s typically huge warning signs when it comes to income stocks with a high yield.
If investing was as easy as just grabbing a bunch of dividend stocks with double digit dividend yields, everybody would be rich.
However, you already know this. That’s exactly why you’ve come to this page. You want to know what the top high yielding dividend stocks are here in Canada. Ones with safe payout ratios and sustainable distributions.
Most of Canada’s Top High Yielding Dividend Stocks are Speculative
There’s nothing wrong with this. You just have to be prepared to take on more risk, and ultimately live with a dividend cut at some point.
It’s safe to say that most companies cannot maintain a double digit, or even high single digit dividend yield. There may be some times where price levels are depressed enough that an opportunity presents itself to grab a high yielding quality company on the cheap. Think a pipeline company during the COVID-19 pandemic.
Such opportunities are the exception, not the rule. And even then, who’s to say that a pipeline company like Enbridge, who investors were purchasing for a 15%+ dividend yield back in the peak of the pandemic, doesn’t cut its dividend?
There’s no dividend that’s completely “safe”. With high yielding stocks I could argue there’s no dividend that’s even remotely safe.
But, its human nature to want more, even if it stretches the limits. And for that reason, I’m going to give you some of the highest yielding dividend stocks in Canada today.
I’ve Vetted These High Yielders for Quality
It would be pretty easy for me to simply hop on a stock screener or even our dividend safety screener and pop out a ton of stocks that provide ridiculously high yields.
However, I don’t want you to lose all your money down the road when the company inevitably cuts the dividend.
So, this list is going to contain what I feel are the best plays in terms of high yielders here in Canada. Most of these companies have some resemblance of dividend growth and aren’t at an exorbitant risk of the dividend getting cut in the immediate future.
But, by no means am I saying these companies are without extensive risk. I tend to throw this blanket statement out there when investors ask me about chasing yield. If you’re doing it, do so knowing that it’s a risky endeavor.
Anyways, lets get right to the list. Keep in mind, I’m going to avoid split corps like Dividend 15 Split and Canoe Income Fund and instead focus on high yielding stocks only.
ENB – EXE – TF 5 Year Dividend Adjusted Performance vs the TSX
Charts provided by StockRover. Check out Stockrover Here!
In order to not flood this high yielder list with pipeline companies, I’ve decided to go with one of the biggest ones in the world, Enbridge (TSX:ENB).
Now, both Pembina (TSX:PPL) and Keyera (TSX:KEY) yield more, but considering you’re beating the average return of the market just by receiving Enbridge’s mammoth 8.1% dividend, I think investors should be more than happy.
Enbridge is an energy generation, distribution, and transportation company in the U.S. and Canada. The company’s flagship pipeline is its Mainline system, which carries over 1.45 million barrels a day through over 2300 km of pipe. Enbridge also owns a regulated natural gas sector, making it Canada’s largest natural gas distributor.
The energy markets are getting hammered, thus the high yield for Enbridge. It’s important to note however that Enbridge has outperformed other companies in the energy sector by a whopping 36% over the last year. Canadian investors all want a piece of this high yielding stock. So, lets get down to the brass tacks. Is Enbridge’s high yield safe?
To this I would answer, safer than most. The company boasts a payout ratio in excess of 300% in terms of earnings. This is enough to make most run for the hills. However its important to note that Enbridge has raised dividends for 25 consecutive years, and the company is paying out just shy of 90% of free cash flows towards the dividend.
This makes it look a lot more stable. Although 90% of FCF’s is not optimal, it looks way better than 300% of earnings.
There’s no doubt that the overall population is getting older. In fact, by 2030 the Government of Canada expects that nearly 25% of Canadians will be age 65 or older.
As the population gets older, it’s inevitable that more people will be looking for senior care. That’s why Extendicare (TSX:EXE) stock is extremely popular right now.
Extendicare is a long-term care facilities company. The company generates its revenue from retirement living, long-term care, and home health care. They have more than 122 facilities across the country, with more in production due to high demand.
Now, the primary issue with the company and the reason why its dividend yield is so high right now is because of the COVID-19 pandemic. Companies like Sienna Senior Living and Extendicare are currently in the midst of heavy accusations of lack of care, and unfortunately litigation.
This has not only led to a collapse in share price (down 36% on the year) but could also permanently harm the company’s reputation if accusations of negligent care are correct.
If Extendicare does make it through this, shareholders who make a contrarian play and invest in the company could see decent returns. Lets not forget, this is a company that prior to COVID-19 was outperforming the broader markets pretty consistently over the last half decade.
Extendicare is currently yielding north of 9% and has a payout ratio in terms of earnings that exceeds 200%. So, the company needs to get back on track sooner rather than later, or this dividend could be in real danger. However, it’s high yielding nonetheless.
Timbercreek Financial (TSX:TF)
Timbercreek Financial (TSX:TF) is yet another stock that collapsed in price due to the COVID-19 pandemic and hasn’t quite recovered, resulting in a very high dividend yield.
The reasoning for the stock lagging the TSX’s recovery? Primarily due to the fact that it is a non-commercial mortgage lender. As more and more Canadians looked to defer their mortgages during the height of the pandemic, investments in companies that specialize in them is considered high risk.
Timbercreek focuses on shorter-duration customized financing solutions to professional real estate investors. The company tries to stick to multi-residential, office, and retail buildings located across the country. Overall, the company invests in only income producing real estate. Think office buildings, apartment complexes, not single-family dwellings.
The company currently has a juicy 8.3% yield, which is going to nab you better than average market returns just in dividends alone. And although its payout ratio is high in terms of earnings at 121%, it’s actually the lowest one on this list.
Timbercreek is lagging the overall recovery of the index, down 13% year to date. However, over the last half decade it’s outperformed the broader markets on a dividend adjusted basis by a wide margin.
Investors who bought Timbercreek 5 years ago are currently sitting on 32% returns, while the TSX is just over 20%. Not too shabby.
Timbercreek, more than likely due to its lucrative dividend, is getting a bit expensive. With a forward price to earnings of 14.8, a price to sales of 5.8 and a price to book of 1, it’s relatively expensive compared to the overall sector which sits at 10.9, 3.7, and 0.7 respectively.
If you’re buying this company for the high yield, it’s a solid option. But don’t expect much dividend growth. The company has grown its dividend by a miniscule $0.0005 per share since 2016. But, with a 8% yield, can we really expect much growth?
These are Solid High Yielding Canadian Stocks, But They do Pose Risks
Like I said at the beginning of the article, if investing was as easy as grabbing a high yielding Canadian stock and reaping the rewards, we’d all be rich.
These are strong Canadian stocks. But they do pose significantly more risk than a company with a long history of raising dividends and a stable payout ratio. It’s important if you’re going to invest in these high yielders, you do so knowing the risks. A high dividend yield is propping these stocks prices up. If the dividend were to get cut, they’d more than likely hit rock bottom.