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3 Magnificent Ultra-High-Yield Dividend Stocks That Are Screaming Buys in April

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Image source: Getty Images

Written by Andrew Button at The Motley Fool Canada

Are you looking for high-yield dividend stocks to buy in April?

For the most part, the pickings are pretty slim – markets have been very hot over the last 12 months – but pockets of value persist. Although you won’t find much yield in the tech sector, there are other, more overlooked sectors that offer plenty of yield. In this article, I will explore three of them – one telco and two banks.

BCE

BCE Inc (TSX:BCE) is an ultra-high yield Canadian telco stock that pays out 8.9%. It is not my personal pick for the strongest overall Canadian telco – that would be Rogers (TSX:RCI.B) – but it does have the highest yield today.

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BCE’s main claim to fame would be the utterly enormous trailing dividend yield. At 8.91%, it’s hard not to stand up and take notice. However, BCE has a 120% payout ratio, meaning that it pays out more in dividends than it earns in profit. Can this be sustained? When I look at BCE’s combination of growth and profit characteristics, I’m inclined to think that it can. You see, while the company’s dividend is greater than its reported profit, a company’s reported earnings include many non-cash factors. On a “cash in and cash out” basis, BCE can in fact cover its dividend: its free cash flow and operating cash flow ratios are both below one. The company’s “free cash flow yield” is significantly higher than its dividend yield.

With that said, I definitely would not take it as a positive if BCE were to raise its dividend again this year. The company has more important growth concerns to work on. The way things are going now, my best guess is that BCE’s dividend continues being paid, but the stock price doesn’t move much. I should also explain what I said about liking Rogers better than BCE. Rogers has a lower P/E ratio, a higher revenue growth rate, and a dramatically lower payout ratio than BCE has. I don’t own any telcos right now, but if I were to buy one, Rogers would be the one I’d be looking at.

Oaktree

Oaktree Specialty Lending (NASDAQ:OCSL) is a U.S.-based non-bank lender with an 11.3% yield. A non-bank lender is a company that writes loans but does not take deposits. In today’s world of inverted yield curves, the lack of deposits is a definite plus. Another big positive with OCSL is its favourable combination of value and growth characteristics. At today’s prices, it trades at just eight times earnings and one times book value, yet its revenue is up 44% this year, and its earnings are up thousands of percentage points! If we look at the growth on a five-year compounded basis, we see that the high revenue growth holds up but the earnings growth does not. Most likely that is due to unrealized losses on the company’s loans when interest rates went up in 2022: the growth in cash flows has been consistent.

TD Bank

The Toronto-Dominion Bank (TSX:TD) is currently one of North America’s cheapest big bank stocks. Its yield is 5.05%. That might not be quite “ultra” high yield, but it’s fairly high. More to the point, TD is among the cheapest banks in its size category, trading at just 10 times earnings. Similarly large banks such as Bank of America, JPMorgan Chase, and Royal Bank of Canada are closer to 12 times earnings. Yet TD’s revenue growth rate is comparable to theirs, and its earnings went down last year mainly because of non-recurring factors such as First Horizon deal-related hedge positions. Negative growth rates that resulted from such factors should reverse in the year ahead.

The post 3 Magnificent Ultra-High-Yield Dividend Stocks That Are Screaming Buys in April appeared first on The Motley Fool Canada.

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Bank of America is an advertising partner of The Ascent, a Motley Fool company. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Fool contributor Andrew Button has positions in Bank of America and Toronto-Dominion Bank. The Motley Fool recommends Bank of America, JPMorgan Chase, and Rogers Communications. The Motley Fool has a disclosure policy.

2024