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Cheer up, dividend investors.

Sure, many dividend stocks have been clobbered by the recent surge in interest rates. But look on the bright side: If you’ve got cash to invest, your money will go that much further.

Not only will you be able to earn a higher yield, but I’d argue that many dividend stocks are actually safer now than they were six months or a year ago. That’s because prices have already dropped to reflect rising rates and other worries investors might have.

In other words, the bad news is already baked in.

Many investors get this backward. They look at the chart of a stock that’s plunged in value and assume that the downward trajectory will continue, so they panic and sell. But, as long as the business remains sound, a lower price should make the stock more appealing, not less. As Warren Buffett says, the best time to be greedy is when others are fearful.

With that in mind, here are three dividend stocks that yield more than 5 per cent. As a bonus, all three companies have raised their dividends in the past year. As long as the businesses continue to perform well, I expect to see further increases ahead.

Emera Inc. (EMA)

Price: $40.35

Ann. dividend: $2.26

Yield: 5.6 per cent

Electric and gas utility Emera posted first-quarter results above expectations, helped by favourable weather, a solid performance from its utilities in Florida and New Mexico, and the recent launch of the Maritime Link transmission line connecting the island of Newfoundland to Nova Scotia. Yet the stock is still down about 14 per cent this year, largely reflecting the negative impact of U.S. tax reform. Even though the company recently reiterated its 8-per-cent annual dividend growth guidance through 2020, analyst Robert Kwan of RBC Dominion Securities said the sluggish stock price may also reflect skepticism that Emera can sustain that growth rate over the long run. In a note, Mr. Kwan said that trimming the dividend growth rate to about 4 per cent to 5 per cent and lowering the payout ratio to 60 per cent to 70 per cent (from a current target of 70 per cent to 75 per cent) “is the right thing to do” as it would free up cash to fund Emera’s robust capital spending program. Investors might react negatively in the short run, but “ultimately, we think that a change would be positively received by the market,” he said.

Pembina Pipeline Corp. (PPL)

Price: $44.69

Ann. Dividend: $2.28

Yield: 5.1 per cent

Pipelines have been making headlines for all the wrong reasons, what with Enbridge Inc.’s shares sinking on debt concerns and the federal government buying the Trans Mountain pipeline from Kinder Morgan Inc. But the only drama surrounding Pembina Pipeline has been the good kind: The company, which operates crude oil, natural gas and natural gas liquids pipelines, announced strong first-quarter results in May and boosted its dividend by 5.6 per cent. Citing solid customer demand and higher commodity prices, the company also recently hiked the low end of its full-year adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) guidance by $100-million, to a range of $2.65-billion to $2.75-billion. Robert Catellier, an analyst with CIBC World Markets, says Pembina offers “very solid operations, opportunity to surface new organic projects, longer-term growth visibility, and minimal funding risk. While the story may lack an obvious catalyst near term, we believe the current valuation represents a modest price for a high-quality stock.”

***

SmartCentres REIT (SRU.UN)

Price: $29.70

Ann. Dividend: $1.75

Yield: 5.9 per cent

SmartCentre’s outdoor malls are easy to spot: They’re usually anchored by a Walmart and have a sign out front with cartoon penguins on it. But it’s SmartCentre’s activity outside of retail that makes it an intriguing pick: Aiming to accelerate growth, the REIT is expanding into residential real estate (both condos and rental units), retirement homes, office and self-storage sites. One example is the Vaughan Metropolitan Centre, a massive mixed-use development that includes the Transit City Condos, which will consist of three 55-storey towers – with a total of 1,700 units – located next to a new subway station in Vaughan, Ont., just north of Toronto. SmartCentres has 56 sites that are candidates for redevelopment or intensification, and with real estate veteran Mitchell Goldhar – the REIT’s largest unitholder – recently named executive chairman and increasing his involvement, “SmartCentres is clearly moving beyond a simple retail REIT, with development a key,” said Raymond James analyst Ken Avalos. Yet the units are still down more than 20 per cent from their 2016 high and trade at a discount to the REIT’s estimated net asset value, making this an “excellent entry point for a REIT in transformation,” Mr. Avalos said in a note in May, when the units were trading at $28.70.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 22/05/24 1:11pm EDT.

SymbolName% changeLast
EMA-T
Emera Incorporated
-0.52%49.72
PPL-T
Pembina Pipeline Corp
-0.79%50.26
SRU-UN-T
Smartcentres Real Estate Investment Trust
+0.44%23

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