High yielding Canadian stocks can be extremely attractive as they can deliver considerable cash to investors. The compounding can be quite significant on these stocks, and naturally those seeking income will gravitate towards a Canadian stock with a higher yield.
It is important to note however, that not all are created equal.
A high dividend yield can be a sign of trouble and may result in a dividend cut or worse yet, the suspension of the dividend. In other cases, a high yield may be temporary and underpinned by reliable cash flows. In such scenarios, the dividend may be perfectly safe and sustainable.
It is therefore critical that investors don’t chase yield blindly. Understanding and evaluating the business and the safety of the dividend is of the utmost importance.
With that in mind, here are the top 10 yielding dividend stocks on the TSX Index. Each stock on the list has a minimum market cap – at least $250 million – and a minimum average daily trading volume – at least 10,000.
This weeds out some of the more volatile and speculative picks.
Of note, the following list is not a recommendation to buy. It is a starting point for investors looking to cash in on high yields. These high yielding Canadian stocks are in no particular order in terms of quality, we’ve simply sorted them from the highest yield to lowest.
1. Vermillion Energy (TSX:VET)
Market Cap: $2.99 Billion
Dividend Yield: 13.37%
Payout Ratio: 110.84%
Current Price: $19.23
1 Year Target Price: $26.46
Vermillion Energy (TSX:VET) is an oil and gas company that holds interests in light oil and liquids-rich natural gas assets. It has operations worldwide with properties in North America, Europe and Australia. All three of which are considered ‘safe’ jurisdictions. More than half of production comes from North America and approximately a third from European operations.
Current properties offer the company a wealth of growth opportunities. If Vermillion chooses to enter new jurisdictions, it does so through acquiring producing properties.
The company pays a monthly dividend which is supported by business units that are high margin and have low decline rates. It aims to be self-funded without the need for external financing.
Vermillion has also aligned its business strategy to that of the UN’s Global Goals for Sustainability Development (SDGs). Thanks to this commitment, it is quickly being recognized as a leader in corporate social responsibility.
2. Chemtrade Logistics Income Fund (TSX:CHE.UN)
Market Cap: $868 Million
Dividend Yield: 12.50%
Payout Ratio: N/A
Current Price: $9.38
1 Year Target Price: $11.86
Chemtrade is an industry leading provider of industrial chemicals and services. It services customers worldwide and operates in three segments – Sulphur Products and Performance Chemicals (SPPC), Water Solutions and Specialty Chemicals (WSSC) and Electrochemicals (EC).
Each segment accounts for approximately one-third of revenue with SPCC leading the way followed by WSSC and EC.
The company’s business strategy has four pillars:
- Growth – in which it aims to grow and diversify earnings
- Business Model – in which it aims to mitigate the risk of commodity prices
- Operational Excellence – a focus on improved operations
- Financial Prudence – maintain a flexible balance sheet
Chemtrade is a monthly dividend payer.
3. American Hotel Income Properties REIT (TSX:HOT.UN)
Market Cap: $547 Million
Dividend Yield: 11.78%
Payout Ratio: 720%
Current Price: $7.00
1 Year Target Price: $6.90
A limited partnership, American Hotel Income Properties (AHIP) invests in high-quality hotel real estate properties which are primarily located in the United States. AHIP targets secondary U.S. markets – U.S. cities outside of the top 25. Think places such as Baltimore, Cincinnati, Pittsburgh and the like.
This monthly dividend REIT owns and operates approximately 79 properties which are located in high-traffic areas such as airports, highway interchanges and other transportation hubs. Brands under operation include such notable names such as Hampton Inn, Holiday Inn Express, Residence Inn and Embassy Suites.
A focus on premium brands is a major shift for this real estate investment trust. In 2013, it was an economy lodging pureplay. However, it has emerged as a 100% premium-brand play as it sold off the remainder of the economy lodging portfolio in 2019.
4. Canoe EIT Income Fund (TSX:EIT.UN)
Market Cap: 1.24 Billion
Dividend Yield: 11.30%
Payout Ratio: N/A
Current Price: $10.57
1 Year Target Price: N/A
Canoe is a closed end income fund that invests in a diversified portfolio of assets. Its goal is to maximize the monthly distribution and capital gains for investors.
As one of Canada’s largest closed-end funds, its portfolio of assets are focused on quality franchises, stable businesses and long-term sustainable growth.
Think of Canoe like a Canadian ETF or a mutual fund which invests and holds a basket of stocks. It has an MER fee of 1.57%. The company’s top holdings include the likes of Canadian Natural Resources, Berkshire Hathaway, Coca-Cola and the Royal Bank of Canada among others.
Canadian and US equities account for approximately 81% of holdings and it has been in operation since 1997. It is important to note that monthly distributions contain dividends, capital gains and return of capital. These have varying tax implications and investors are advised to speak to a tax advisor to understand them fully.
5. Frontera Energy Corporation (TSX:FEC)
Market Cap: $914 Million
Dividend Yield: 8.63%
Payout Ratio: 62.10%
Current Price: $9.41
1 Year Target Price: $17.13
A small cap exploration and production company, Frontera Energy is a Latin America pureplay. Its assets are in Columbia, Ecuador, Guyana and Peru. In fact, it is the largest independent Oil and Gas company in Latin America.
Although it produces natural gas, it accounts for a very small percentage of production (3%). The majority is split between Light & Medium Crude and Heavy Oil which each account for approximately 47-48% of production.
From a reserve standpoint, Heavy Oil accounts for 62% of reserves, while Light & Medium Crude accounts for only 36%. Natural gas is once again negligible at 2% of total proved and probable reserves.
Over the next three-to-five years, it has a sustainable path to growing production and is focused on optimizing cash generation and increasing shareholder returns. The company pays out a quarterly dividend and, in the past, has also rewarded investors with a one-time special cash dividend.
6. Freehold Royalties (TSX:FRU)
Market Cap: $837.1 Million
Dividend Yield: 8.62%
Payout Ratio: N/A
Current Price: $7.06
1 Year Target Price: $10.95
Freehold Royalties is not your typical oil & gas company. The company acquires and managers oil & gas royalties in Western Canada. It owns rights to approximately 6 million acres in Western Canada.
As a royalty company, it is does not have high capital expenditures as the majority of operating and capital costs are covered by the producers. These producers license the right to drill on its lands.
Given its model, it generates considerable cash flow. It has low cash costs per barrel and delivers considerable netback.
In turn, it returns a monthly dividend to shareholders and uses its cash to make additional acquisitions. The company has a targeted dividend payout ratio of 60-80% and has a targeted debt ratio of 1.5 times funds from operations. At a 1 year price target of nearly $11, analysts are predicting Freehold to be one of the better stocks to buy in Canada for 2020.
7. Slate Retail REIT (TSX:SRT.UN)
Market Cap: $570 Million
Dividend Yield: 8.41%
Payout Ratio (FFO): 85%
Current Price: $13.30
1 Year Target Price: $10
Although markets are bearish on traditional retail REITs, Slate Retail REIT is anything but traditional. It owns 79 properties across the U.S. which are 100% anchored by grocery-related tenants.
In total, it has 10.2 M sq. ft. of leasable space in 21 states. Among the top 5 tenants include blue chip companies Walmart and Kroger. Combined they account for 15% of company revenue.
The company’s strategy is to acquire and manage grocery-anchored neighborhood shopping centres which serve as critical distribution points.
The company pays out a monthly dividend and has consistently maintained its dividend payout ratio below 85% of funds from operations. This has enabled it to growth the dividend and achieve Canadian Dividend Aristocrat status.
8. Arc Resources (TSX:ARX)
Market Cap: 2.48 Billion
Dividend Yield: 8.52%
Payout Ratio: 150%
Current Price: $7.02
1 Year Target Price: $9.70
Arc Resources is another Western Canadian exploration and production company. Although it produces products of all types, natural gas accounts for 74% of production and 77% of proved and probable reserves. Given this, the company is most susceptible to the price of natural gas.
The company’s business strategy is centered around a risk-managed value creation. It aims to deliver financial stability through prudent capital allocation and operational excellence.
It aims to have a net debt to funds from operations ratio below 1.5, which provides it with the flexibility to navigate a prolonged bear market for natural gas prices. The company is exiting a period of high CAPEX and is moving towards a larger production base and lower capital requirements.
This will enable the company to generate additional cash flow as it returns capital to shareholders through its monthly dividend.
9. True North Commercial REIT (TSX:TNT.UN)
Market Cap: $667.92 Million
Dividend Yield: 7.77%
Payout Ratio: 89.14%
Current Price: $7.56
1 Year Target Price: $7.31
True North is a pureplay office REIT. It has $1.4 billion in assets and 49 properties across five provinces. More than 75% of the company’s revenues are underpinned by government and credit-rated tenants.
The company has a long term growth strategy to acquire properties that are immediately accretive to cash flows. It targets urban centers which a particular focus on government and credit-rated tenants which are currently paying below market rents. This enables it to optimize value upon renewal.
Some of its largest tenants include Toronto-Dominion Bank, the Alberta Treasury Branch and the Federal Government – Correctional services. Combined they account for approximately 16% of revenue.
The company pays out a monthly distribution and aims to lower its payout ratio to below 100% of adjusted funds from operations.
10. Inter Pipeline (TSX:IPL)
Market Cap: 9.19 Billion
Dividend Yield: 7.74%
Payout Ratio: 118%
Current Price: $22.05
1 Year Target Price: $24.70
One of the smaller companies in the industry, Inter Pipeline has big ambitions. The company is currently undertaking the largest project in its history – the $3.5 billion Heartland Petrochemical project.
It will be the first Petrochemical plant in Canada and the goal is to have Heartland operational in 2021. Once operational it will drive significant EBITDA and cash flow growth. The company has been one of the more reliable capital allocators in the space, as it consistently delivers projects on time and on budget.
Inter is a Canadian Dividend Aristocrat and aims to keep its monthly dividend to 80% of cash flows before sustaining capital.