This year has been very difficult for income investors. While growth stocks quickly recovered from the pandemic-induced decline in March, income portfolios struggled as many major dividend payers draped or suspended their payouts to keep cash.
U.S. Companies in the midst of the coronavirus pandemic revealed their strongest second-quarter dividend cuts since 2009, according to a Wall Street Journal analysis.
According to S&P Jones Indices, shareholders were notified in the second quarter of a net cut of $ 42.5 billion in dividends on common stock, excluding companies with a market value of less than $ 25 million. Notable names on this long list include Disney (NYSE :), American Airlines (NASDAQ :), and aerospace giant Boeing (NYSE :).
Despite this bleak picture, there are still worthwhile opportunities for investors with long-term incomes who strive to regularly distribute cash without risking their capital. One area to explore is companies north of the US border, where some of the largest dividend stocks are trading at very attractive levels.
Here are two of my favorite picks:
1. Bank of Nova Scotia
Market Cap: $ 51.37 Billion
Quarterly payout: $ 0.68
Dividend Yield: 6.48%
Canadian banks are very different from their US counterparts. They operate in a kind of oligopoly with very limited foreign competition. This lack of external challenges allowed these lenders to not only maintain their market share, but also maintain some very robust profit margins.
While this is not good for consumers who have little choice but to accept exceptionally high bank and investment fees, these lenders have been a great place for investors, especially when compared to their American peers.
If you want to get an exceptionally high dividend yield from one of these lenders, the Toronto-based Bank of Nova Scotia (NYSE :), (TSX 🙂 is an option. Undoubtedly, Scotiabank faces a rough time, as are other lenders, as COVID-19's recession is hurting its margins and forcing it to set aside more money for expected credit losses, but the company's $ 0.68 per share quarterly dividend is safe, in our opinion.
One of the major factors in this strength is that BNS is well-funded with capital strength well above legal requirements, and it still is.
Bank of Nova Scotia 1-Year Chart.
In a recent note, TD Securities analyst Mario Mendonca "considered" a & # 39; rating awarded to the Canadian banking sector, which will "come out of this crisis with dividends, capital strength and earnings power intact".
Scotiabank has paid dividends to investors every year since 1832, while increasing its payouts in 43 of the past 45 years.
2. BCE Inc.
Market Cap: $ 37.8 Billion
Quarterly Payout: $ 0.63
Dividend Yield: 6.06%
Like banks, Canadian telecom operators are also excellent dividend payers. Regulations that prohibit foreign competition protect their markets and allow them to charge higher rates for their services.
For these reasons, the country's largest telecom operator, BCE Inc. (NYSE :), (TSX 🙂 is another opportunity to achieve a higher dividend yield in this low interest rate environment.
Telecom stocks tend to outperform when long-term interest rates have fallen because companies, such as BCE, use a lot of debt financing to fund investment cycles. When interest rates are low, it costs them less to maintain and refinance their debt.
This strong link to long-term interest rates will allow BCE, also known as Bell, to recover quickly once the pandemic-related slowdown is over. But the stock's higher return shows investors are on a wait-and-see basis as telecom operators grapple as the home-working environment hurts their wireless and media revenues.
Bell & # 39; s sales were down 9.1% year-on-year, and profits fell as much as 64% during, mainly hurt by a write-off on its media assets.
That slow period, which weighed on BCE stocks by 10% this year, is a buying opportunity in our view. BCE has long had a policy of increasing its dividend by 5% annually, which is enough to beat inflation. The company divides between 65% and 75% of its free cash flow into payouts, meaning that it has more than doubled its annual payout since the fourth quarter of 2008.
