Investing $10,000 in This High-Yield Dividend Stock Will Get You $1,015/Year

The Keyera stock is an attractive option for investors chasing high returns in the pandemic. However, you have to understand and accept the risks in the highly volatile energy sector.

| More on:

The economic situation in Canada before the 2020 novel coronavirus outbreak was generally healthy. People were going about their routines, including the preparation of tax returns for the income year 2019. However, COVID-19 disturbed the balance and brought instant instability.

In October, the federal government is still handing out emergency aid in what is supposed to be the recovery period. The fallout from the pandemic is intense, especially on household finances and retirement dreams. Economists expect the economy to contract further due to a long-term recession.

While federal aid is flowing, it’s temporary. To prevent a financial lockdown once it dries up, consider investing in a high-yield dividend stock that can boost annual income or bolster retirement funds.

Tempting offer

The stock market is risky and in constant threat of a crash because of the second wave of COVID-19. But it’s also the marketplace to purchase income-producing assets. A large Canadian independent midstream energy company that pays a high 10.15% dividend is hard to ignore if you’re chasing a massive windfall.

If you invest $10,000 in Keyera (TSX:KEY) today, you can earn $1,015 per year. Invest ten times more the amount, and the annual earnings are $10,150. Since this energy stock pays monthly dividends, you’ll have an extra $845.83 in income support every month.

Risk and reward

Keyera’s dividend offer is tempting and will reward you with higher income. Still, don’t jump into the water without considering the risks. The energy sector is the worst performer among the 11 primary sectors in the S&P/TSX Composite Index, with its -55.15 year-to-date return.

Current Keyera investors are losing by 38% thus far, as of this writing, although analysts recommend a buy rating. They forecast the stock to appreciate from $19.46 to $30 in the next 12 months or a 58% return to the pre-corona level. However, expect earnings volatility in the short-term while oil prices remain depressed.

Key takeaways

A key takeaway for this $4.3 billion company is that it’s more sensitive to volumes, not oil prices. Keyera provides natural gas liquid (NGL) gathering, processing, fractionation, storage, transportation, logistics, and marketing services.

At present, the company has interests in 18 active gas plants, while the construction of two gas plants in Alberta is ongoing. Aside from the extensive 4,000 kilometre pipeline network in its gathering system, all the facilities’ economic life is long term.

Keyera offers a full range of essential midstream services. Likewise, its broad customer base consisting mostly of investment-grade counter-parties is a plus factor. More cash flow is coming once the expansion projects (Simonette, Wapiti, and Pipestone gas plants) are complete. Existing gas processing capacity in the region would double, while condensate handling capacity will increase.

Finally, Keyera’s assets are in strategic locations and boast of an integrated business model. Also, collections are from fee-based service contracts. It can compete with North America’s natural gas distributors and other midstream and transportation service providers.

Determine your risk tolerance

The uncertainties today require the efficient use of financial resources. If you’re investing in a high-yield dividend stock like Keyera, you must have the stomach for the elevated volatility. Also, it assumes the capital you will invest is not money you can’t afford to lose.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends KEYERA CORP.

More on Dividend Stocks

hand stacks coins
Dividend Stocks

3 Ultra-High-Yield Dividend Stocks You Can Buy and Hold for a Decade

These three high-yield dividend stocks still have some work to do, but each are in steady areas that are only…

Read more »

senior man and woman stretch their legs on yoga mats outside
Dividend Stocks

TFSA: 2 Canadian Stocks to Buy and Hold Forever

Here are 2 TFSA-worthy Canadian stocks. Which one is a good buy for your TFSA today?

Read more »

calculate and analyze stock
Dividend Stocks

This 5.5% Dividend Stock Pays Cash Every Single Month!

This REIT may offer monthly dividends, but don't forget about the potential returns in the growth industry its involved with.

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

How to Use Your TFSA to Earn up to $6,000 Per Year in Tax-Free Passive Income

A high return doesn't mean you have to make a high investment -- or a risky one -- especially with…

Read more »

path road success business
Dividend Stocks

2 High-Yield Dividend Stocks to Buy Hand Over Fist and 1 to Avoid

High yields are great and all, but only if returns come with them. And while two of these might, another…

Read more »

Man holds Canadian dollars in differing amounts
Dividend Stocks

This 7% Dividend Stock Pays Cash Every Month

A high dividend yield isn't everything. But when it pays out each month and offers this stability, it's worth considering!

Read more »

young people stare at smartphones
Dividend Stocks

GST/HST “Vacation”: Everything Canadians Need to Know

The GST/HST "vacation" is a little treat for the holidays, along with a $250 payment. What should you do with…

Read more »

Train cars pass over trestle bridge in the mountains
Dividend Stocks

Is CNR Stock a Buy, Sell, or Hold for 2025?

Can CNR stock continue its long-term outperformance into 2025 and beyond? Let's explore whether now is a good time to…

Read more »