First, the bad news: Dividend stocks have tumbled.
Now, the good news: Dividend stocks have tumbled.
Watching your portfolio shrink in value is no fun. I get that. But if you've got cash to invest, the recent pullback in some dividend-paying stocks is actually a gift: You can now get more dividend income for every dollar you invest.
Today, we'll look at four dividend stocks – a pipeline, a utility, a power producer and a real estate investment trust – that are down an average of about 8 per cent from their 52-week highs. Despite the retreat in their share prices – which is largely attributable to rising interest rates – they're all solid companies with a bright future.
To make the cut for today's list, I looked for stocks with the following attributes: a dividend yield of at least 4 per cent; at least one dividend increase in the past year and favourable ratings from analysts.
I'm not suggesting that these stocks will snap back immediately. For all I know, they could continue to drift lower in the short run. But for investors with a long-term horizon, the current soft patch could turn out to be a good buying opportunity. Just remember to do your own due diligence before investing in any security.
TransCanada (TRP)
Price: $59.46
Yield: 4.2 per cent
The Energy East pipeline is dead. And, while Keystone XL is making progress – TransCanada has secured 20-year shipping commitments for about 500,000 barrels of crude a day – the company has not made a final investment decision. But there's more to TransCanada than these megaprojects. Citing $24-billion of smaller "near-term" growth initiatives, the company has pledged to raise its dividend at an annual rate "at the upper end" of 8 per cent to 10 per cent annually through 2021. TransCanada typically hikes its dividend in February when it announces fourth-quarter results and I fully expect another increase next month. Analysts are bullish on the shares, with 13 buys, three holds and no sells, according to Thomson Reuters.
Emera (EMA)
Price: $46.39
Yield: 4.9 per cent
Utilities are sensitive to rising interest rates, and Emera is no exception. But the company's aggressive growth agenda – including plans to raise its dividend by 8 per cent annually through 2020 – should help to offset the headwind from rising rates. Emera's regulated gas and electric utilities churn out steady cash flows and are well-diversified geographically. And with a $7.7-billion capital program from 2017 through 2020 that includes investments in solar and other renewables, "the company's growth outlook remains solid, driven by the 'greening' of [power] generation," CIBC World Markets analyst Robert Catellier said in a note. Including Mr. Catellier's "outperformer" rating (equivalent to buy), there are six buys, six holds and one sell on the shares.
Northland Power (NPI)
Price: $23.40
Yield: 5.1 per cent
After holding its dividend steady for more than a decade, Northland Power raised its payout by 11 per cent in November, signalling management's confidence in the independent power producer's outlook. Driven by offshore wind projects in the North Sea, Northland Power expects adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) to grow by 80 per cent and free cash flow per share to rise by 60 per cent by 2020 (compared with 2016 levels), RBC Dominion Securities analyst Nelson Ng said in a note. Based on the current annual dividend of $1.20 a share, that would translate into a payout payout ratio of just 55 per cent of free cash flow, Mr. Ng said. He calls the shares "fully valued" and rates them "sector perform" (equivalent to a hold), but nine analysts have Northland Power as a buy, with just one other hold.
Canadian REIT (REF.UN)
Price: $45.29
Yield: 4.1 per cent
Widely regarded as one of the country's best-managed REITs, Canadian REIT's unit price has stumbled recently amid rising interest rates and weakness in its office and industrial portfolios in Alberta and Atlantic Canada. But the selling has been overdone, according to analyst Johann Rodrigues of Raymond James. Citing consistent net asset value (NAV) growth in CREIT's property portfolio and a "steep" 8-per-cent discount of the unit price to NAV, he recently upgraded the stock to "outperform." "While operations may be soft through [the first quarter of 2018], in our view, with a sector-leading balance sheet and track record of distribution growth, there are still plenty of positives to lean on while we await a turn in fundamentals," Mr. Rodrigues said in a note.
Disclosure: The author holds TRP, EMA and REF.UN personally and in his model Yield Hog Dividend Growth Portfolio.