What kind of investor are you? Cautious dividend enthusiasts or rebellious crypto riders? The stock market is currently experiencing outrageous moves that have thrown conventional wisdom out the window. At such times, dividend-paying stocks are your companion when the bubble bursts.
There is a famous quote from The smart investor Author Benjamin Graham, “The real investor will do better if he overlooks the stock market and pays attention to his dividend yields and the operating results of his companies.” This is how you should proceed with the selection of securities. Be selective about the stocks you buy, study the company’s operations and its cash flow. If you have a fundamentally strong share, the market price doesn’t matter.
What is the yield of a 6% dividend?
Once you have a dividend stock with a stable business that brings steady cash flow, you might want to consider three things:
Its history of paying dividends
Its average yield and a current dividend
The frequency of dividend increases and decreases.
A dividend yield is the amount of the annual dividend as a percentage of the stock price. This means that if you buy a $ 100 stock with a 6% dividend yield, the stock will give you $ 6 annual dividend. The company can divide this dividend amount quarterly or monthly.
Here I will discuss two TSX stocks that pay more than 6% dividend yield.
Dividend stock that beats inflation
A dividend yield of 6% can help you beat inflation, which is around 2%. Enbridge (TSX: ENB) (NYSE: ENB) at the top of my list of dividend-paying stocks for the above Three points. He paid regular dividends since 1953. He never announced a dividend reduction. It pays a quarterly dividend and has even increased it at a compound annual growth rate (CAGR) of 10% over the past 26 years. Enbridge’s current dividend yield is 7%, which is higher than its five-year average yield of 5.7%.
If I were to put Enbridge’s dividend income in dollars, a $ 500 investment in 2000 will now have an accumulated dividend of $ 2,017. The Company’s toll collector business model for the transportation of oil and natural gas will continue to increase its cash flow over the next 10+ years. While there are concerns that a shift to renewables and slower pipeline installation could impact Enbridge’s cash flow, it will only make its existing pipeline infrastructure more valuable, than it can use to transport renewable energy.
The stable dividend stock
Although not as good as Enbridge, SmartCentres REIT (TSX: SRU.UN) is a good dividend choice for the rent collector business model. The REIT has paid regular dividends since 2003 and announced a 67% dividend reduction in 2005. It pays a monthly dividend and has even increased it at a CAGR of around 3% over the past five years. Its current dividend yield is 6.29%, which almost matches its five-year average yield of 6.1%.
SmartCentres has many retail stores in hot spots where ownership rates are high. This is how it maintains a high occupancy rate. But it is vulnerable to a crisis as retailing takes a hit. During the financial crisis of 2009, the REIT maintained the same dividend rate for more than seven years. It was also tough during the 2020 pandemic, as the lockdown closed all non-essential stores and left many retailers bankrupt. Even when other retail REITs announced dividend cuts, SmartCentres maintained their dividend rate. This shows that the REIT is gradually becoming resilient to the crisis.
SmartCentres is starting to achieve this resilience through its scale-up program. The program expands its portfolio beyond retail to include residential, office, hotel and storage facilities. This diversification will reduce its strong dependence Walmart, from which it derives about 25% of gross retail income.
Take away idea
Dividends can protect your portfolio from market volatility and give you the flexibility to invest a small portion in speculative bets. Dividend stocks are also a good investment for your emergency fund. So invest a good part of your portfolio in dividend-paying stocks.
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Silly contributor Puja Tayal has no position in any of the listed securities. The Motley Fool owns shares and recommends Enbridge. The Motley Fool recommends Smart REIT.