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Effective with this year’s January distribution, RioCan REIT (TSX: REI.UN) slashed its monthly payout by one third. It was another sign of the toll the pandemic has taken on payouts from income-oriented investments. Should conservative, income-seeking investors panic and start looking around for guaranteed investment certificates (GICs)?
RioCan’s distribution cut wasn’t a complete shock. Since its business is primarily focused on shopping malls, there had been concern about tenants being unable to pay rent. But management had been upbeat all year and just a few weeks earlier long-time CEO Edward Sonshine, who will step down as CEO at the end of this month, had reported “strong” third-quarter results.
“Given the quality and sustainability of our income, as well as our strong liquidity position, we are confident that we will not only navigate through this storm but will be poised to take advantage of any emerging opportunities as we continue to create value for our unitholders,” he said.
No explicit promises there. But the words convinced a lot of investors and some analysts that the distribution was safe.
It wasn’t. Starting with the January distribution, investors will receive a payout of $0.08 a unit each month, down from $0.12 a unit previously.
It wasn’t the first time a dividend/distribution has been cut since the pandemic began and probably won’t be the last. Several companies in the energy sector have reduced their payouts, including industry giant Suncor Energy Inc. (TSX: SU), which slashed its dividend by 55% effective with last June’s payment. In the financial sector, Laurentian Bank (TSX: LB) cut its dividend by 40% in late May 2020.
Investors are right to be concerned about these cuts. Rock-bottom interest rates have changed the landscape, and many people are relying on stocks to provide income, turning their backs on GICs and bonds. Small wonder. Royal Bank is currently offering 0.05% annually on an ordinary savings account. You’d need a microscope to spot any interest credited. Or you can take quadruple your return with 0.2% on their cashable 1-year GIC. No wonder dividend stocks are hot.
But which ones are safe? Technically, none. Any board of directors can cut its payout at any time. But dividend cuts come with a price tag. The stock price almost always drops. The company’s reputation takes a hit. Investor confidence is eroded. That’s why reducing the payout is seen as a last resort.
Here are some companies with very attractive yields that I think are secure. No guarantees, but I would be astonished if any of these firms reduced its payout.
BCE Inc. (TSX: BCE). Canada’s largest telecommunications company pays a quarterly dividend of $0.8325 per share ($3.33 annually), to yield 5.6% at the time of writing. BCE has seen a drop in revenue and profits since the onset of the pandemic, but nothing that should cause the board to consider a dividend cut.
Canadian Imperial Bank of Commerce (TSX: CM). Don’t let the Laurentian Bank cut spook you. Canada’s big five banks aren’t going to reduce their payouts unless there is a financial disaster (and if that happens, we’re all in big trouble). The bank reported fourth-quarter net income of $2.79 per share. That was down slightly from last year but comfortably ahead of the $1.46 per share quarterly dividend. The stock was yielding 4.8% at the time of writing. Any time you can find a big five bank stock yielding near 5%, grab it!
Canadian Utilities Ltd. (TSX: CU). Utility stocks are a great place to look for stable, above-average yields. This Alberta-based supplier of electricity and natural gas pays a quarterly dividend of $0.4354 per share ($1.7416 a year) to yield 5.7%. The company has reported reduced profits and earnings in 2020 due to the pandemic and the drop in oil prices that hit Alberta’s economy. A dividend cut is unlikely, but the company’s record of 47 straight years of dividend increases may be in danger.
The North West Company Inc. (TSX: NWC). Remember reading about The North West Company in your high school history books? This is it. NWC traces its roots back to 1668. It’s not in the fur-trading business anymore but owns a string of general stores across northern Canada and Alaska, some of which have been around for 200 years. It’s a profitable business. Second quarter 2020 sales increased 23%, to $648.5 million, and net earnings increased $44.6 million, to $62.6 million. The company increased its quarterly dividend by 9.1% in September, to $0.36 per share. The stock yields 4.2%.
International Business Machines Corp. (NYSE: IBM). High-tech stocks are usually not great dividend payers. Their earnings are ploughed back into growing the business and making the owners richer. Nobody really cares if Alphabet or Amazon or Shopify make quarterly payments; investors are just happy to see their capital gains grow. But there is one exception. IBM, which has been around longer than most of the others, pays out a nice fat US$1.63 per share each quarter. It can afford to; the company earned US$2.58 per share in its 2020 third quarter. The stock yields 5.3%.
Enbridge Inc. (TSX: ENB). Pipeline companies may seem like a relic from another era as the green energy revolution gains momentum. But let’s not lose sight of reality. We’re still going to need oil and natural gas for years to come, and companies like Enbridge have the infrastructure in place to deliver it. The stock has been stuck in neutral for months, but the company reported strong third-quarter earnings and announced a 3% dividend increase for 2021. Starting this month, the shares will pay $0.835 per quarter ($3.34 annually), to yield 7.3%.
These are just a few examples of high-yielding stocks that should maintain and, in most cases, increase their dividends in 2021. Forget about GICs for now. This is where you should be looking for income.
Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investor newsletters, which are available through the Building Wealth website. A previous version of this article originally appeared in The Toronto Star.
Follow Gordon Pape on Twitter at https://twitter.com/GPUpdates and on Facebook at www.facebook.com/GordonPapeMoney.
Notes and Disclaimer
© 2021 by The Fund Library. All rights reserved. The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.
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