PEY:CC - 2 Stocks With Sustainable Yields of 8% or More
2024-05-06 16:20:00 ET
No matter how ambitious your yield “scale” (from low to high) is, an 8% yield should be on the high end. For many conservative dividend investors, it may be higher than they are comfortable with because high yields often indicate some underlying problems, like a weak stock or unsustainable payouts.
Sustainable high yields are highly coveted, and two stocks offer incredibly high yields with safe dividend payout ratios.
An energy company
While most energy stocks in Canada are experiencing investor attention thanks to the bullish phase the sector experienced post-pandemic, many energy picks are still primarily attractive because of their dividends. This includes pipeline giants with generous yields as well as smaller players like Peyto Exploration & Development ( TSX:PEY ).
With a market capitalization of about $2.95 billion, this energy company is on the lower end of the mid-cap scale. The company is focused exclusively on Alberta’s Deep Basin and has ample proven reserves in the area.
Even though the stock experienced robust growth along with the rest of the energy sector, growing over 1,200% from its post-pandemic low point, its yield is still impressive at 8.7%. The payout ratio is relatively stable at 81% as well.
The primary reason behind this remarkable yield is the company’s incredibly generous growth of its dividends in the last four years — from $0.01 per share to $0.11 per share.
A mortgage company
If we go by market share, bank stocks are technically the best way to gain exposure to Canada’s mortgage industry, and the banks dominate this market segment. However, mortgages are just one part of their business model, whereas with companies like MCAN Mortgage ( TSX:MKP ), mortgages are their only business.
This small-cap mortgage company also has multiple businesses, but mortgages (both residential and commercial) are its primary business, making up about 69% of the company’s revenue. Another large chunk (22% by the end of last year) comes from construction loans, which is essentially the same market.
MCAN has managed to maintain its market value at a decent level in the last five years without any significant dips, which is impressive considering the state of the real estate market. It’s also quite attractively valued, with a price-to-earnings ratio of just seven.
But the highlight of the stock is its incredible yield of 9.9%, which may as well step into double digits with a minor dip. Despite this incredibly high yield, the payout ratio is rock solid at 66.6%.
- We just revealed five stocks as “best buys” this month … join Stock Advisor Canada to find out if MCAN Mortgage made the list!
Foolish takeaway
The two dividend stocks can help you generate a solid passive-income stream. Both are offering financially sustainable payouts right now at an incredible yield, and both have a history of raising their payouts (at least in healthy markets).
The stocks are relatively stable right now, but if they start rising at a healthy pace, the yields may gradually become less attractive.
The post 2 Stocks With Sustainable Yields of 8% or More appeared first on The Motley Fool Canada .
Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .
2024