The risks of chasing high yields are well documented. At times, a high yield can signify poor business practice, underlying operational issues, and could be a warning sign that the dividend is unsustainable.
It is why analysts and investment gurus across the world warn against the perils of chasing high yields. It often doesn’t turn out well.
There are times, however, when a high yield is sustainable, and there is no risk of a dividend cut. These can be quite attractive and allow investors to get a leg up on building a sustainable income stream. The average yield of the Canadian Dividend Aristocrats is approximately 3.5%, and as such, we will use this as the benchmark to define a high yield.
With that in mind, her are three dividend stocks yielding up to 8.8% that are worth another look.
Fiera Capital
As an asset management firm, Fiera Capital (TSX:FSZ) provides services to institutional investors, mutual funds, charitable organizations and high-net-worth private clients. The company had a tough 2019 in which the stock price dipped by approximately 3%.
As a result, the yield has been inching upwards and has now reached an attractive 7.57%. This ranks among the top five in terms of yield on the Canadian Dividend Aristocrat list. At first glance, the dividend looks suspect, as Fiera Capital posted negative earnings this past year.
However, if you look closer, you will see a dividend that is well covered by operational cash flow (OCF) and free cash flow (FCF). As a percentage, the dividend accounts for only 49% of OFC and 56% of FCF. These are respectable payout ratios that have allowed the company to grow dividends by an average of 15% over the past five years.
Slate Retail REIT
Don’t be fooled by its status as retail-focused REIT. Slate Retail REIT (TSX:SRT.UN) is a grocery-anchored pure play. This will enable it to prosper, while traditional retail continues to be under attack by e-commerce. It has a strong retention ratio and is divesting itself of non-core properties. Even as the grocery sector becomes an e-commerce target, retail space is still needed for distribution.
The company has a six-year dividend-growth streak, which matches the length of time it has been listed on the TSX Index. When it comes to determining the safety of the dividend, earnings are not the most reliable when it comes to REITs. It is best to use adjusted funds from operations (AFFO).
In this case, Slate has been consistently reducing its payout ratio, as it pays down debt and executes its recycling program. Through the first nine months of fiscal 2019, the dividend accounted for only 84.4% of AFFO, down from 107% in the third quarter of 2018. As of writing, Slate’s 8.82% yield is the third highest among all Canadian Aristocrats.
Canadian Imperial Bank of Commerce
You can’t talk dividends without referring to Canada’s Big Five banks. This is especially true when one of them is yielding 5.29%. Such is the case with Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM).
Although CIBC has struggled to keep up with its peers in terms of growth, it remains a phenomenal income stock. The bank hasn’t missed a regular dividend payment since 1868. That is 151 years of delivering consistent income to shareholders.
Even during the financial crisis, when its banking peers south of the border were slashing the dividends, CIBC never wavered. Although it suspended dividend growth, it did not cut the dividend. It has since returned to dividend growth and has a nine-year dividend-growth streak.
If CIBC navigated the financial crisis without the need for a dividend cut, you can bet your last dollar that you won’t find a safer 5% yield in North America.
