Money Smarts: Dividend Stocks That Buck the Trend
Photo: Jarmoluk / Pixabay
These are not good times for income-oriented investors. Rising interest rates have put downward pressure on many high-yielding stocks, reducing the market value of their portfolios.
The dividends are still being paid. But people are getting edgy as they see the price of their shares pull back. No one likes a shrinking portfolio.
Fortunately, there are a few dividend stocks that are bucking the trend. Here are two that were recommended in my Income Investor newsletter. Prices are as of Aug. 20.
Norbord Inc. (TSX, NYSE: OSB)
Type: Common stock
Current price: C$56.08, US$42.93
Annual payout: $2.40 (variable)
Yield: 4.28 per cent
Risk Rating: Higher risk
Comments: Norbord shareholders received a pleasant surprise earlier this month when the board approved a special stock dividend of $4.50 for shareholders of record as of Sept. 1. Not surprisingly, the share price jumped on the news.
The announcement came after the company posted the best second-quarter results in its history with adjusted earnings of $167 million ($1.92 per share, fully diluted) compared to $95 million ($1.10 per share) in the same quarter last year. The company reports in U.S. currency.
Norbord manufactures oriented strand board (OSB), which is used in home construction. It is a cyclical company that is currently benefitting from high prices and strong demand for its products. CEO Peter Wijnbergen says that is expected to continue.
“Given the positive outlook for OSB demand in North America and Europe driven by continued growth in the construction and renovation of homes, as well as meaningful growth in industrial end-uses and export markets, Norbord is well positioned to continue to return excess capital to shareholders, including through share repurchases,” he said.
But a word of warning. This is a boom or bust company. Right now, it is going through a boom phase. But as recently as March 2017 the quarterly dividend was only $0.10 per share and the stock was trading at around the $30 level. So, if you own the stock enjoy the ride for now but be prepared to sell at the first sign of a slowdown in home construction.
If you don’t have a position and buy before Sept. 1, you will receive the special dividend, but the share price will probably drop after that date to reflect the big payout.
Pembina Pipeline Corp. (TSX: PPL, NYSE: PBA)
Type: Common stock
Current price: C$46.04, US$35.26
Annual payout: $2.28
Yield: 4.95 per cent
Risk rating: Moderate
Comments: The company recently released strong second-quarter results that drove the price higher despite the headwind of higher interest rates.
All the numbers were impressive. Revenue came in at $1.9 billion, up from $1.2 billion in the same period of 2017. For the first six months of the fiscal year, revenue was $3.8 billion compared to $2.6 billion the year before. The acquisition of Veresen last year was a major contributor to the revenue growth.
Earnings were $246 million ($0.43 per share), up from $117 million ($0.24 a share) in the second quarter of 2017. For the first six months, Pembina earned $576 million ($1.02 per share) compared to $327 million ($0.72 a share) the year before.
“We are seeing strong customer demand for our services, leading to higher volumes and increased utilization in the Pipelines and Facilities Divisions, combined with rising commodity prices which drive solid performance in our Marketing business,” said CEO Mick Dilger.
The monthly dividend was increased by a penny in May to $0.19 per share ($2.28 per year).
My newsletter rating on this stock is a buy as I see it as the best choice in the pipeline sector right now. Consult your financial advisor before making a decision.
Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters. For more information and details on how to subscribe, go to www.buildingwealth.ca.