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Listed Canadian companies help investors drive investment returns when they share a portion of their profits and pay dividends. Dividend earners can supercharge the returns by reinvesting the dividends. Tripling the payout is also possible with high-yield stocks.
The average dividend yield of Birchcliff Energy (TSX:BIR), Doman Building Materials Group (TSX:DBM), and Extendicare (TSX:EXE) is 8.09%. Assuming a conservative baseline of $9,000 ($3,000 in each stock) and constant yield, the total payout on the first year is $728.10.
If you reinvest the dividends every year, your annual dividend payment by year 16 will be approximately $2,338.70. Given the assumptions, the payout triples within the same period regardless of the investment amount.
Strong fundamentals
Birchcliff Energy is underperforming in 2023 (-11.39% year to date), although it has delivered significant returns in 3 years (436.02%). At $7.91 per share, the dividend offer is 9.69%. The $2.1 billion intermediate oil and gas company is forward-looking and commits to generating substantial free funds flow through 2027.
Management expects to generate a cumulative free funds flow of $1.3 billion from 2023 to 2027. Birchcliff will use excess free funds flow in 2024 to reduce debt and can still fund its common share dividend payments.
The fundamentals remain strong despite the $42.5 million net loss in Q1 2023. Market analysts have a 12-month average price target of $9.78 (+23.6%).
Strong margins
Doman Building Materials’ investors are happy in 2023. At $7.84 per share, they enjoy a 42.31% year-to-date gain on top of the lucrative 7.33% dividend yield. The $685.9 million company is Canada’s only fully integrated national distributor in the building materials sector. It’s also North America’s leading building materials distributor.
Besides the distribution centres in major cities in Canada and the U.S., Doman operates multiple treatment plants and planning facilities in both countries. The Canwell Fibre division owns vast timberlands in Canada and Hixon Lumber Company, a subsidiary, is a major supplier of wood products.
While consolidated revenues in Q1 2023 declined 18.3% to $710.7 million, net earnings increased 40.7% year over year to $29.2 million. According to its Chairman, Amar S. Doman, the gross margin (17%) was very strong, notwithstanding the macroeconomic uncertainties and tough pricing environment.
Strong recovery
Extendicare delivers quality care and services for Canada’s growing senior population. The $543.6 million company operates long-term care (LTC) homes and retirement communities (owned and managed services). It also provides group purchasing services to third parties.
The business has recovered from the global pandemic, as evidenced by the 97.2% average occupancy rate in LTC homes in Q2 2023 versus 92.5% in Q2 2022. Extendicare’s current strategy focuses on a less capital-intensive, higher-margin business model for LTC and home healthcare.
The acquisition of the Revera Home Health business will expand Extendicare’s platform and make it a national provider of home healthcare services. If you invest today, the healthcare stock trades at $6.45 per share and pays a lucrative 7.27% dividend (monthly payout).
Power of compounding
Dividend investors can take advantage of compound interest. Your baseline grows at an accelerating rate because of more frequent compounding of interest when you reinvest dividends.
