Written by: Jay Yi, MBA; Edited by: Chris Thompson, CFA, MBA, P.Eng
eResearch | As mentioned in yesterday’s eR newsletter, the 2-year/10-year Treasury Bond inversion has been a hot topic as a bellwether of an upcoming recession. Now, another metric has grabbed the spotlight – the S&P500 dividend yield is larger than the yield on the 30-year U.S. Treasury Bond, and the only other time that this has happened, in the past 40 years, was in 2009, during the financial crisis.
Long-term investors looking for safe, predictable cash flows from bonds are experiencing sub-par performance as yields are pressured downwards with growing global uncertainties and debt levels. A reasonable alternative for investors looking to diversify from low yielding bonds are dividend companies that are within a stable industry, have reoccurring, predictable cash flows, and are leaders in market share within their respective industry.
Below are two Canadian and two U.S. dividend yielding stocks for your Watch List:
Pfizer Inc. (NYSE: PFE)
Pfizer is an American multinational pharmaceutical company, in a non-cyclical industry and provides medical products that are usually not a discretionary purchase and are often subsidized by governments and insurance companies. Pfizer has also mitigated competition from generic companies as it announced on July 29, 2019 that its off-patent drug unit Upjohn would merge with Mylan, a US$10 billion generic pharmaceutical company.- Pfizer’s most recent dividend increase was in December 2019, when it announced a 15% increase in its quarterly dividend.
- Pfizer has a 4.06% annual dividend yield (63% payout ratio), compared with competitors GlaxoSmithKline PLC yielding 4.38% and Merck and Co. yielding 2.54%.
Carnival Corp. (NYSE: CCL)
Carnival is a British-American cruise operator and is currently the world’s largest travel leisure company, commanding over 100 vessels across 10 cruise line brands in North America, Europe, Australia, and Asia. The cruise operation business is growing as the baby boomer generation retires, coupled with a rising trend in travelling amongst millennials. In addition, there is little room for competition as a large amount of capital is needed to start a cruise line.- In May 2018, Carnival hiked its dividend, when it announced an 11% increase to its quarterly dividend.
- Carnival has a 4.54% annual dividend yield (47% payout ratio), compared with competitor Royal Caribbean Cruises Ltd. (NYSE: RCL) yielding 2.71%.
Bank of Nova Scotia (TSX: BNS)
The Bank of Nova Scotia, operating as Scotiabank, is Canada’s third largest bank with multinational operations, and operates within a high barrier to entry industry, as banks need licenses, capital, access to financing, and regulatory compliance.- Scotiabank recently raised its dividend by 3% to 90 cents per share (53% payout ratio).
- Scotiabank has a 4.98% dividend yield, compared with competitors RBC at 4.3%, TD at 3.78%, Bank of Montreal at 4.21%, and CIBC at 5.49%.
TELUS Communications (TSX: T)
TELUS is a Canadian multinational telecommunications company that operates in a stable, non-cyclical industry within an oligopoly in which it can control prices and dominate ownership of spectrum licenses which are auctioned by the government and needed by telecom companies to service a specific geography.- On May 2019, TELUS announced that it will be targeting an ongoing semi-annual dividend increase, with the annual increase in the range of 7 to 10 percent from 2020 to the end of 2022. The increase is an extension to TELUS’ multi-year dividend growth program originally announced in 2011 and extended for three additional years from 2013 to 2016.
- TELUS has a 4.68% dividend yield (68% payout ratio), compared with competitors Rogers at 2.98% and Bell Canada at 5.04%.
Times are changing for dividend focused companies that were comfortable as market leaders within their respective industry, as disruptive changes from technology are transforming industries and bringing in new competition.
In addition, the capital markets have been saturated with numerous mergers and acquisitions in which corporations take on large amounts of debt and interest payments, which may start making a significant effect on the bottom line, especially if interest rates start rising.
Even though leaders in the banking, telecom, pharmaceutical and leisure travel industries seem like they are in very high barrier, low competitive landscapes, technology companies are quickly developing products that may start impacting mature, dividend focused companies.
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Pfizer Inc. (NYSE: PFE)
- Headquarter in New York, U.S., Pfizer is an American multinational pharmaceutical company that has been part of the Dow Jones Industrial Average since 2004 and ranked 57 on the 2018 Fortune 500 list of the largest U.S. corporations by revenue.
- Pfizer currently trades at US$35.33 with a market capitalization of US$195.4 billion.
Carnival Corp. (NYSE: CCL)
- Carnival is a British-American cruise operator and is world’s largest travel & leisure company, divided into two listed companies, Carnival Corporation and Carnival Plc, which functions as one entity.
- Carnival currently trades at US$44 with a market capitalization of US$10.6 billion.
Bank of Nova Scotia (TSX: BNS)
- Headquartered in Toronto, Canada, Bank of Nova Scotia is the third largest back in Canada and serves 25 million customers around the world, offering products and services in personal and commercial banking, wealth management, corporate banking, and investment banking.
- Bank of Nova Scotia currently trades at C$70.47 with a market capitalization of C$85.9 billion.
TELUS Communications (TSX: T)
- Headquartered in B.C., Canada, TELUS is a Canadian multinational telecommunications company that provides products and services including internet, entertainment, healthcare, video, and television.
- TELUS is currently trading at C$48.06 with a market capitalization of C$28.9 billion.
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