Are you looking for stable growing income? If so, you should have these stocks on your radar. They offer sustainable yields of 4.5-5.6% with dividend growth potential of at least 5% per year.
High-growth utility with a 4.5% yield
Algonquin Power & Utilities Corp (TSX:AQN)(NYSE:AQN) has returned about 24.6% on the TSX in the last 12 months. The utility offers a U.S. dollar-denominated dividend which benefits Canadian investors no matter if they opt to receive its dividend in the Canadian or U.S. currency. For U.S. investors, Algonquin offers above-average growth in the relatively stable utility space.
Algonquin continues to execute. In Q1, its adjusted earnings per share increased 19% and its assets grew 94% compared to Q1 2016.
These are thanks partly to its acquisition of Empire, which added 218,000 new water, gas, and electric utility customers to its portfolio, as well as 1,400 MW of regulated electrical power generation.
Algonquin also put in service 210MW of net power generation capacity, of which 160MW has 20 years of power purchase agreements, which implies stable cash flow generation from those facilities.
The utility offers an above-average yield with an above-average growth rate. Due partly to the strength of the U.S. dollar, Algonquin yields 4.5% and aims to grow its dividend by 10% a year.
Thomson Reuters analysts have a mean 12-month price target of C$14.20 on the stock. So, it’s fairly valued. Investors looking for stable, growing income can consider the shares today. However, weakness in the U.S. dollar will bring the yield down for Canadian investors. Investors looking for a margin of safety should wait until a pullback to at least the low C$13 level.
Earn rent from a quality real estate stock
Brookfield Property Partners LP (TSX:BPY.UN)(NYSE:BPY) remains a good value. At about C$30.50 per unit (US$22.60 per unit), it offers a juicy yield of 5.2%, thanks partly to a strong U.S. dollar, as the stock offers a U.S. dollar-denominated distribution.
Brookfield Property has a core office and retail portfolio with interests in 273 properties across 226 million square feet (55% retail and 45% office). These provide stable cash flows to support its distribution.
Brookfield Property also aims for higher returns with opportunistic investments in the multifamily, industrial, hospitality, triple net lease, self storage, student housing and manufactured housing sectors.
The company uses a value-investing approach and continually recycles capital from mature assets to higher-return opportunities.
Management can grow its distribution by 5-8% per year. Thomson Reuters analysts have a mean 12-month price target of US$25.90 on the stock. It’s a good candidate for dividend reinvestment while it remains discounted.
Notably, a portion of its distribution is sourced from the U.S. For Canadians to avoid any withholding tax, hold the units in an RRSP or RRIF.
A diversified real estate stock with a 5.6% yield
Store Capital Corp. (NYSE:STOR) is an internally managed net-lease REIT, which invests in single-tenant operational real estate (STORE). (That’s how the company got the inspiration for its name).
Store Capital has a diversified portfolio of 1,750 property locations (a gross investment of $5.5 billion) across 369 tenants in 48 states.
Store Capital’s senior leadership team has been investing in STORE properties for more than 35 years and estimates the market to exceed the value of $2.6 trillion. So, there’s lots of room for the company to grow.
Store Capital recent results
In Q1, Store Capital maintained a high occupancy of 99.5%, which was 0.04% lower than in Q1 2016. Its DPS is 7.4% higher than it was a year ago.
Its dividend is sustainable with an adjusted FFO payout ratio of about 68%. As well, it has a weighted average remaining lease contract term of about 14 years, which is the longest among its peer group.
Source: Store Capital’s Q1 2017 presentation (pdf) – Slide 29
Fundamentally, the company remains strong and the recent pullback offers a higher yield. At about $20.70 per share, the REIT offers a yield of nearly 5.6%.
Thomson Reuters analysts have a mean 12-month price target of US$26.20 on the stock. This represents upside potential of 26% from current levels.
The management believes Store Capital can grow its AFFO per share north of 5% per year, which should allow the company to grow its DPS by at least 5% per year. Meanwhile, the diversified REIT offers a juicy yield of nearly 5.6% for starters.
This article largely consists of excerpts from the monthly top ideas in my premium service.
If you like what you've just read, consider subscribing via the "Subscribe Here" form at the top right so that you will receive an email notification when I publish a new article.Disclosure: At the time of writing, I own shares of AQN, BPY.UN, and STOR.
Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.
Get Exclusive Articles from me on Seeking Alpha
- Access my portfolio of high-quality U.S. and Canadian dividend stocks.
- Real-time updates of when I buy or sell from this portfolio.
- Get best ideas of the top 3 dividend stocks from my watchlist. Updated each month.