This 8.4% Dividend Stock Is My Top Pick for Immediate Income

This top Canadian stock pays a massive dividend and is consistently growing its free cash flow, making it one of the best to buy now.

| More on:

As the economy continues to struggle and several stocks are trading range bound and off their highs as a result, many investors are looking for top dividend stocks to add to their portfolios.

Dividend stocks offer investors plenty of advantages, which is what makes them so popular. First off, they can help you begin to earn income immediately. With non-dividend-paying stocks, you could be waiting years to see a return on your investment.

Therefore, in this environment where stocks are struggling to rally, the income you can earn from dividend stocks might be the only income investors see until the next bull run.

In addition, though, when you buy a top dividend stock that begins to return you cash immediately, you also lower the risk of your investment. This is because you’re already seeing a return on the cash you invested, and you can take your dividend income and reinvest it in whatever stocks you see fit.

With non-dividend-paying stocks, though, these companies reinvest all their profits in future growth, which may or may not materialize.

Another reason dividend stocks are some of the top investments to make in this environment is that they are typically more established companies. To pay a dividend, businesses need to be consistently earning a profit.

Meanwhile, many stocks that don’t yet pay a dividend are likely still in growth mode and may not even be profitable yet.

Therefore, while stocks are struggling to rally and gain value in the current market environment, this impressive dividend stock is my top pick for immediate income.

My top dividend stock to buy right now

If you’re looking for a top dividend stock to buy now that can earn you significant income right away, I’d recommend investors check out Diversified Royalty (TSX:DIV), the impressive passive-income generator with a current dividend yield of more than 8.4%.

As its name suggests, Diversified Royalty earns a number of different royalties from businesses diversified across multiple sectors.

In fact, the company’s stated goal is to focus on acquiring top-line royalties from well-managed businesses and franchisors with multiple locations across North America.

For example, the dividend stock has partnerships with Mr. Lube, Air Miles, and Nurse Next Door, a home care provider. Furthermore, it earns a royalty from Oxford Learning, a franchise tutoring service; Mr. Mikes, a casual dining restaurant; Stratus, a franchisor in environmentally friendly commercial cleaning; and Sutton, a provider of services to residential real estate realtors.

Is Diversified Royalty’s 8.4% dividend yield safe?

The many diversified businesses that Diversified Royalty has partnered with help to lower the risk for the stock should the economy continue to worsen and impact some industries more than others.

This is crucial for the dividend stock because, as you might guess, with a dividend yield of nearly 8.5%, the stock is constantly paying out almost all the free cash flow that it’s earning.

In fact, in 2022, 2021, and 2020, Diversified Royalty’s payout ratio of free cash flow was 91%, 86%, and 80%, respectively.

It’s also notable that Diversified Royalty has been growing significantly in recent years, using both debt and issuing new shares to fund that growth. This growth and the addition of more royalty streams look intriguing and could give the stock a tonne of long-term potential.

However, with higher interest costs and more cash needed to fund a consistently growing dividend as well as more outstanding shares that need to be paid, it will be essential to watch Diversified Royalty closely over the next few quarters, especially while this economic environment persists.

For now, the dividend looks safe. But if a severe recession were to materialize, there’s no telling how badly Diversified Royalty could be impacted. So, while it’s my top dividend stock for immediate income now, it’s not immune from risks in this environment.

With that being said, though, analysts expect that in 2023, Diversified Royalty will grow its revenue by roughly 28% year over year and its free cash flow by roughly 12%.

Therefore, if you’re looking to boost your passive income and begin earning returns immediately, Diversified Royalty and its significant monthly dividend is one of the best stocks you can consider today.

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 Daniel Da Costa 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.

More on Dividend Stocks

profit rises over time
Dividend Stocks

These 2 Dow Stocks Are Set to Soar in 2025 and Beyond

Two Dow Jones stocks are screaming buys but Canadians must hold them in an RRSP or RRIF to avoid paying…

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

How to Use Your TFSA to Earn Ultimate Passive Income

If you have a TFSA, then you have the key to creating ultimate passive income. All you need is a…

Read more »

Confused person shrugging
Dividend Stocks

Better Buy: Fortis Stock or Hydro One Stock?

Let's do a compare and contrast of these two top utilities stocks right now, shall we?

Read more »

A close up color image of a small green plant sprouting out of a pile of Canadian dollar coins "loonies."
Dividend Stocks

Boost Your Passive Income: 2 Canadian High-Yielders at a Bargain

Nutrien (TSX:NTR) stock and another play that appear like fantastic dividend bargains in mid-November.

Read more »

3 colorful arrows racing straight up on a black background.
Dividend Stocks

TSX Stocks Soaring Higher With No Signs of Slowing

Three TSX stocks continue to beat the market and could soar higher in an improving investment landscape.

Read more »

Hourglass and stock price chart
Dividend Stocks

Goeasy Stock: Is It Heading for a 52-Week High?

Goeasy stock has been edging higher, especially after another record-setting earnings report. So are 52-week highs in sight?

Read more »

Piggy bank with word TFSA for tax-free savings accounts.
Dividend Stocks

Here’s the Average TFSA Balance at Age 44 in Canada

You can invest your TFSA in funds like the BMO Canadian High Yield Dividend ETF (TSX:ZDV) to grow the balance.

Read more »

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

The Best Telecom Stock to Buy Before 2025

Choosing the safest stock from a decimated sector can be tricky, but if there is a reasonable chance of full…

Read more »