Who says you can’t have your cake and eat it to? The adage goes that higher yield = higher risk. To a degree that is quite true. Invest in a company with high debt, a 140% Dividend Payout Ratio, 13% yield and you are looking for trouble. But you can invest in Canadian companies (some well known) with yields of 5% to 10% that have solid balance sheets. Take BCE for example, which has a 5.60% yield and is one of Canada’s leading telecoms and wireless providers.
Canada has many high yield dividend stocks and trusts, many are obviously risky. But some of these companies are gems, which are actually safer to invest in than you might think. If you are a U.S. Investor, Canadian Stocks and trusts offer some high yields that beat American stocks hands down. The income from these investments can even be sheltered in your IRA.
Many of these high yield stocks were originally Income Trusts, and some continue as REITs (Real Estate Investment Trusts). I wrote about the pending income trust conversion in an earlier post. Many of these trusts actually have excellent balance sheets. Of course it goes without saying doing your research and investing with due diligence is always prudent – especially with higher yield stocks.
The Ninja Criteria
In order to maximize yield, while keeping risk manageable, I pre-determined a list of risk criteria for screening. My goal was to filter out stocks that may be in trouble – i.e. high debt etc. Market capitalization was less of an issue for me, since smaller companies generally pay higher yields.
However a company also needs to be able to afford its dividend, as determined by the dividend payout ratio (DPR). A company must also have low debt to operate efficiently. If a company is operating with high debt, and must pay out in dividends more than it collects, then in my opinion that company is not a good investment. Companies that have yields higher than 10% are simply to risky to invest in – usually that high yield is the result of a crashing share price with high debt.
I did not include REITs in this article since that would have required an entirely different analysis. For example, EPS is meaningless for REITs. Distribution / AFFO (adj funds from operations) is the correct way to analyze this sector (as pointed out by a reader).
I think these basic criteria help to create a good filter, though further research is always prudent and necessary:
- Dividend Yield between 5% and 10%
- A Dividend Payout Ratio (DPR) under 75%
- A Liabilities-to-Equity ratio below 1.5
- A Price-to-Earnings (PE) ratio below 15
The High Yield List
Here are the Canadian High Yield Stocks that matched my filter, sorted by dividend yield:
|Company||Symbol||Price||Div Yield%||PE Ratio||LE Ratio||DPR Ratio|
|Chorus Aviation Inc. **||CHR.A||5.35||11.3||5.21||0.40||58.2|
|FP Newspapers Inc. **||FP||5.72||10.3||5.5||0.03||57.6|
|Coast Wholesale Applicance||CWA||4.45||9.4||7.95||1.23||75.0|
|SIR Royalty Income Fund||SRV.UN||10.96||9.1||8.00||0.01||72.9|
|Canfor Pulp Products||CFX||18.73||7.5||7.35||0.24||54.9|
|The Keg Royalties Income **||KEG.UN||13.24||7.3||10.68||0.15||77.4|
|Oil Sands Sector Fund||OSF.UN||7.00||7.2||5.04||0.02||35.9|
|Boston Pizza Royalties||BPF.UN||14.39||7.0||10.35||0.03||72.6|
|COMPASS Income Fund||CMZ.UN||12.76||6.7||6.22||0.10||40.9|
|Brompton Adv. Oil & Gas||AOG.UN||5.92||6.6||3.22||0.51||21.1|
|Core Canadian Dividend Trust||CDD.UN||7.30||6.6||5.03||0.27||33.1|
|Cdn. Resources Income Trust||RTU.UN||13.48||6.4||3.85||0.02||24.5|
|Canadian Helicopters Group||CHL.A||18.50||6.0||8.64||0.31||51.4|
|DirectCash Payments Inc.||DCI||23.00||6.0||11.79||0.95||70.7|
|Energy Income Fund||ENI.UN||6.47||5.6||3.19||0.01||17.7|
|Becker Milk Company||BEK.B||10.70||5.6||10.39||0.01||58.2|
** These stocks have a value that exceeds the filters. They are included in the list with a note of added risk, with either a higher yield or higher dividend payout ratio.
The High Yield Top Picks
BCE Inc. (BCE)
BCE otherwise known as Bell, is one of Canada’s leading telecoms and wireless providers. BCE has a market cap of 26.7 billion, low debt, and a reasonable dividend payout ratio. More importantly BCE has a rich dividend yield of 5.6%. BCE has also been very successful this year, taking the lead over Shaw and Rogers in customer satisfaction. BCE recently purchased CTV, the Canadian Television Network, and incurred little debt.
Rogers Sugar Inc. (RSI)
Rogers Sugar is another solid high yield company, with a generous dividend of 6.4%, a low PE ratio of 8.48, and a low debt ratio. Rogers Sugar is a household name that has been well established in Canadian history, since B.C. Sugar was incorporated March 26, 1890. Lantic Sugar Limited and Rogers Sugar Ltd. merged into a new operating entity now known as Lantic Inc., on June 30, 2008. On January 1, 2011, Rogers Sugar Income Fund converted into a conventional corporation under the name of Rogers Sugar Inc. With that established history, and annual sales of nearly 615 Million – Rogers Sugar is a solid investment for the generous 6.4% yield. It’s definitely on the Dividend Ninja shopping list!
The Keg Royalties Income Fund (KEG.UN)
Keg Restaurants is another of my favourites, after all I have been going to the Keg since I was a teenager! However the Keg Royalties Income fund, should not be confused with the Keg. The Keg Royalty Income Fund (KEG.UN) is an unincorporated open-ended, limited purpose trust which licenses Keg Restaurants Ltd. It has rights to use the Keg name, and in return receives a royalty of 4% of system sales of Keg restaurants. That structure may seem somewhat convoluted, but KEG.UN has over 140 million in assets, with a nice 7.3% dividend yield. The company also has virtually no debt with a very low liabilities to equity ratio of 0.15, and a reasonable PE ratio of 10.68.
Coast Wholesale Appliances (CWA)
With more risk, but also a much higher yield at 9.4%, is Coast Wholesale Applicances. Located in Vancouver, with a market cap of only 29 million, CWA is a supplier of major household appliances to developers and the general public. My partner and I are familiar with the company since we were originally referred to them by our contractor. We were originally going to purchase our appliances from them, but we were quickly turned off with the “used car” style of sales and hustle. For that reason alone, we cancelled our order and went to Sears – where we received a similar deal but with much better service.
Regardless CWA seems to be popular with local contractors and is a bustling business. Coast Wholesale seems to be well valued with a Price to Book ratio of 0.51. This could be a gem if housing construction and renovations on the west coast continues at its current pace.
In Part 2 I will review more Canadian High Yield Stocks. Have a nice week everyone!
I currently do not own any of the stocks mentioned. This post is not an endorsement, and should not be taken as financial advice or a buy recommendation on the specific securities mentioned. High dividend yield companies are higher risk investments. Smaller capitalization companies are innately more risky than larger blue-chips. Be prudent and do your research before investing!