If you’re retired, you might be interested in investments that have a lot of income potential. A younger person can speculate on capital gains and wait out market downturns, but an older person who doesn’t work needs regular income.
Unfortunately, high yield is hard to come by these days. Bond yields remain historically low, and GICs barely pay anything. The same is true of most stocks. S&P 500 ETFs yield about 1.3% at today’s prices. The TSX is higher at 3%, but even that’s not the kind of yield you can get rich on.
Fortunately, there are plenty of individual high-yield stocks out there to choose from. If you’re willing to look into mature industries like banks, utilities, and telcos, you can get well north of 4%. In this article, I’ll explore three such stocks to consider for a high-yield portfolio.
Fortis (TSX:FTS)(NYSE:FTS) is a utility stock with a 3.8% yield at today’s prices. This is the lowest-yielding stock on this list, but it has a lot of dividend-growth potential. Over the past 46 years, Fortis has increased its dividend every single year. Over the next five years, management is aiming to increase the payout by 6% a year. If that works out, then in five years, your yield on cost will be much higher than 3.8%. And it could very well work out. Fortis managed to increase its net income in the first quarter and grow its adjusted EPS in the second. The rate of growth wasn’t amazing, but remember that we’re talking about the COVID-19 era here. Most years, Fortis is able to grow enough to increase its dividend without increasing its payout ratio.
At today’s yield, you’d need to invest only $130,000 in FTS to get $5,000 a year back in income.
BCE stock is the highest yielder on this list, although its stock price performance has been poor. BCE stock was down 5.14% over a five-year period as of this writing. However, prior to the COVID-19 market crash, its five-year return was slightly positive. There are reasons to think that BCE could return to healthy growth after the pandemic is over. The Canadian telco space is not very competitive and has extremely high barriers to entry. This provides a healthy environment for BCE to grow in. Its most recent quarterly results were mixed, with earnings metrics all down, but free cash flow up 49%.
At the current yield, you’d only need to invest $80,600 in BCE stock to get $5,000 a year back in income!
Algonquin Power & Utilities
Algonquin Power & Utilities (TSX:AQN)(NYSE:AQN) is, like Fortis, a utility stock. Also like Fortis, it yields 3.8%. The similarities just about stop there though. Whereas Fortis is geographically diversified, AQN is pretty solidly focused on the Midwestern United States. There, it provides a mix of renewable energy and LNG. Its investments in renewable energy like wind and solar position it well for future environmental regulations. Its second-quarter results were mixed. GAAP earnings were up 83%, while adjusted earnings were down 18%. Overall, that’s not bad considering the COVID-19 situation. It would take $130,000 invested in AQN to get to $5,000 a year in dividend income.
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Fool contributor Andrew Button has no position in any of the stocks mentioned. The Motley Fool recommends FORTIS INC.