What is a dividend yield?
A dividend yield is essentially the return you receive as a result of a stock’s dividend. It is calculated by dividing the annual dividend payment by the company’s share price. Sometimes the dividend yield is higher due to the decline in the value of the stock price, and sometimes it is higher because the company pays a large portion of its profits to shareholders. And sometimes it’s a bit of both.
In this article, I discuss three of the best dividend stocks that I think you should consider adding to your portfolio.
Enbridge
As one of the leading energy infrastructure companies in North America, Enbridge Inc. (TSX:ENB) has a lot going for it: 31 consecutive years of dividend growth, a low-risk business model, and a predictable and growing business focused on the essentials.
Enbridge’s operations include energy infrastructure such as pipelines, utilities and gas storage assets. Some of the activities are regulated and a large part of the unregulated activities are protected by long-term contracts. As a nice bonus, inflation protection is built into more than 80% of corporate profits. In summary, Enbridge is a defensive company that is predictable.
This translates into a reliable dividend. But despite all this, Enbridge shares continue to trade at a high dividend yield of 5.6%. making Enbridge one of the best dividend stocks you can own today.
Healthcare real estate in the northwest
Another dividend stock that is well positioned in a very defensive sector is Northwest Healthcare Properties REIT (TSX:NWH.UN). Like Enbridge, Northwest is a dividend stock that is both high-yield and defensive.
Today, the stock yields a generous 6.3%. It is a return that is high and well supported. Northwest Healthcare Properties owns and operates healthcare real estate. The portfolio includes hospitals, ambulatory and ambulatory care centers and medical office buildings. These buildings are essential – the population is aging and demand for them will only increase.
Furthermore, these assets are characterized by long-term leases and are very sticky. The average weighted average term of leases is currently 13.4 years. The occupancy rate is 96.9% and almost 85% of the rental contracts are subject to rent indexation.
Northwest’s financial situation is improving as the company has sold non-core assets, paid down debt and ultimately improved its cash flows. In turn, Northwest’s leverage and payout ratios are falling. In the latest quarter, adjusted funds from operations rose 16% to $0.11 per share. This brings the payout ratio to 85%, compared to 99% in the same period last year.
Telus
Much has been said about it Telus Corp. (TSX:T) and its decision to halt dividend increases. Today, Telus shares yield an incredible 8.6% amid high debt levels and pressure on its mobile business.
But the company is taking action to address its debt burden and restore dividend growth. For example, certain divestitures and a plan to monetize the highly successful Telus Health business will create a capital injection into the company, allowing it to pay down some of its debt.
Telus’ activities are defensive. We need the telecom giant as we enter an increasingly connected world. Telus will focus on its pure fiber connectivity, as well as AI-powered home solutions and technology-enabled healthcare. Management has announced a very bullish three-year cash flow target: free cash flow growth at a minimum compound annual growth rate of 10%.
The bottom line
So what is a dividend yield? Ideally, this should be the guaranteed annual shareholder return.
It’s true that all of these dividend stocks not only have a high dividend yield, but also have a high debt load. This is both a function of the sectors in which they operate and of some missteps. And this has led investors to question their dividend yields. However, I return to the strong, predictable cash flows and defensive activities of these companies. In my opinion, this is what will get them out of their current troubles, strengthen their balance sheets and continue to provide investors with reliable dividend income. This makes them one of the best dividend-paying stocks in Canada.
#Dividend #Stocks #Double