High-yielding stocks are hard to come by, especially ones that are sustainable. It’s important, with stocks that have high payouts, to consider the company’s cash flow and if it is strong enough to afford the dividend payments, because if there isn’t enough cash coming in, that might mean that a dividend cut is around the corner.
I’m going to have a look at three dividend stocks that pay more than 7% annually and assess whether or not these would be good options to add to your portfolio.
Timbercreek has seen free cash flow increase for three straight years, and dividend payments have averaged over 95% of the company’s available cash. This is a bit concerning, because if Timbercreek sees a decline in its income, it may not be able to maintain its current dividend. In the trailing 12 months, Timbercreek’s free cash has risen, and this has resulted in its payout ratio dropping to under 90%. However, I would avoid the non-bank lender, especially under the current economic conditions where interest rates might continue to rise and put borrowers at a higher risk of default.
Although the company has been growing sales with its latest quarter showing a 56% increase in revenue, profit margins averaging just 4% the past three years means that American Hotel will have to see a lot more growth to make its dividend sustainable.
Net losses, falling free cash, and operations in a struggling oil and gas industry make Ensign a stock that might be primed for a dividend cut. Dividend investors looking at oil and gas should consider Enbridge Inc. (TSX:ENB)(NYSE:ENB) instead, which offers a much safer payout.
