The sad year-to-date performance by the Canadian stock market has had some positive results for income seeking investors.
As of late April, it was possible to get a dividend yield of 5 per cent or more from a five-pack of stocks in the S&P/TSX 60 index. A company doesn’t get into the 5-per-cent club without its share price coming under attack from unhappy investors. But a yield of 5 per cent from a blue chip member of the 60 index (large, liquid stocks) is an attention-grabber. That’s more than double the latest inflation rate of 2.2 per cent.
The back story on rising dividend yields is that interest rates are heading higher in the bond market. Higher bond yield pulls money out of dividend stocks, which means falling share prices. As share prices fall, dividend yields climb.
One way to assess a high-yielding blue chip stock if you’re focused on income is to look at its dividend growth history. A record of paying a rising dividend over the past five years suggests a company’s current cash payouts aren’t under immediate threat, even if investors are pushing the share price lower. A growing dividend also provides at least a degree of support for a company’s share price, as well as inflation protection for income-seeking investors.
To look into a stock’s dividend growth rate, create a Watchlist on Globeinvestor.com and select the dividend view. Here’s what the dividend view of stocks in the 5-per-cent club as of April 18 showed:
- Inter PipeLine Ltd. (IPL-T): A yield of 6.9 per cent and annualized five-year dividend growth of 9.1 per cent. Pipeline stocks are sensitive to interest rates – this helps explain the one-year loss of 13 per cent in the share price.
- Enbridge Inc. (ENB-T): A shockingly high yield of 6.4 per cent, but average annual dividend growth of 16.4 per cent over the past five years. Clearly, there’s doubt about Enbridge’s ability to sustain this growth. The one-year loss in the share price was almost 26 per cent.
- BCE Inc. (BCE-T): The yield was 5.6 per cent, while five-year dividend growth came in at 5.3 per cent. With interest rates creeping higher in the past year, BCE’s share price has fallen 11.5 per cent.
- Emera Inc. (EMA-T): A 5.6-per-cent yield and five-year dividend growth of 9.4 per cent. Utilities like Emera are classic rate-sensitive stocks – this explains the 14.2-per-cent share price decline in the past year.
- Pembina Pipeline Corp. (PPL-T): A 5.1-per-cent yield and 4.9-per-cent dividend growth in the past five years. Shares are down just 3.3 per cent in the past 12 months.
Rob Carrick