Should You Have High Yield Stocks in Your Portfolio?

Investors have different income goals, and sometimes, they’re forced to buy high-yield stocks, such as Alaris Royalty Corp. (TSX:AD), which currently offers a whopping dividend yield of 10.3%.

Investors should ask themselves why a company is paying such a high yield. Heck, even when Alaris was trading at higher levels and offered a +7% yield in 2015, it was still considered a high-yield investment.

yellow caution signs plastered on a page

How High of a Yield is Too High?

Typically, when a stock offers a yield of 6% or higher, investors should be extra careful. In my recent article on Seeking Alpha, I discussed the risks of investing in Alaris. So, I won’t go into the details of that.

Here’s a quick summary, though. Alaris lends money to companies and gets monthly cash distributions in return. Ideally, Alaris would like to partner with these companies for the long haul to get a high income from them.

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A Higher-Growth Utility For Your Income Needs

Recently, I got an article published about Algonquin Power & Utilities Corp. (TSX:AQN)(NYSE:AQN). That’s right. It’s a higher-growth utility that might help to fill your income needs.

Summary

  • Algonquin is estimated to grow at a rate (of 10%) that’s double that of some its bigger peers.
  • It offers a ~4.9% yield and aims to increase its dividend at a CAGR of 10% through 2022.

Business Overview

Algonquin’s portfolio is best summed up in two parts:

1) Non-regulated electric generation assets powered by renewable and thermal energy. It has 1,545 MW of net generating capacity (68% wind, 8% hydro, 2% solar, and 22% thermal) across 38 facilities. This part of the portfolio makes up ~30% of Algonquin’s assets.

About 87% of the output from its hydro, wind, and solar facilities (i.e. ~68% of its net generating capacity) have long-term power purchase agreements with a production-weighted average remaining term of ~15 years.

2) Regulated electric, natural gas, water distribution and wastewater collection utility systems, and transmission operations serve 762,000 customers across 12 U.S. states through 33 utilities. This part of the portfolio makes up ~70% of Algonquin’s assets.

Algonquin has been benefiting from the shift to renewable power from coal. The utility has been growing its power portfolio partly by developing its own projects and partly by accretive acquisitions. Its regulated utilities continue to grow organically, and the company is also on the lookout for accretive acquisitions.

Dividend

Algonquin has increased its dividend for 7 consecutive years with a 5-year dividend growth rate of ~9.6%, and it currently offers a decent yield of ~4.9% that’s juicier than most other utilities. Management targets dividend growth of ~10% per year, which will reduce Algonquin’s payout ratio over time.

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Is It Time to Buy Walt Disney?

The main content for this article first appeared in the Seeking Alpha Marketplace service DGI Across North America, in which other stable, long-term companies were discussed.

Conservative investors should give Walt Disney (NYSE:DIS)  another look, as the stock has been consolidating and earnings catching up.

Disney World in Orlando

Disney World in Orlando

Walt Disney: The Business

Disney is a conglomerate of content. It owns Pixar (acquired in 2006), Marvel (2009), Lucasfilm (2012). And of course, Disney profits from its franchises via its theme parks, movies, and merchandises.

Recent News

In December 2017, Disney announced that it’ll acquire certain key 21st Century Fox assets. Here’s the press release and here is some additional info from NBC News. This will be a positive for Disney, as Fox has popular entertainment properties, including X-Men, Avatar, and The Simpsons. The acquisition could also lead to cost savings of more than $2 billion.

The Fox acquisition is expected to close by June 2018. From the Disney press release:

Prior to the close of the transaction, it is anticipated that 21st Century Fox will seek to complete its planned acquisition of the 61% of Sky it doesn’t already own. Sky is one of Europe’s most successful pay television and creative enterprises with innovative and high-quality direct-to-consumer platforms, resonant brands and a strong and respected leadership team.

However, Comcast (NASDAQ:CMCSA) has joined in on the bid for Sky. Perhaps the increased uncertainty around Sky is why Disney dipped recently.

The dip is a great opportunity to nibble some Disney. The stock now yields 1.6%, which is my minimum yield target for the stock. My conservative estimate is that the company has the capacity to grow its dividend at a rate of 7-10% for the next few years. Read More