Skip to main content

Stockbyte/(c) Stockbyte

High-yielding stocks and trust units can be a warning sign that the market feels the distributions are less than secure. But as Trevor Johnson, an analyst at National Bank Financial, points out, many of these equities have been in high-demand recently.

"The higher yielding equities are outperforming the lower yielding, with this outcome further evidence that investors are indiscriminately buying yield, a trend we believe persists given an imbalance between robust demand for income but a limited supply of assets providing it," he said in a note.

Translation: Low interest rates are encouraging income-oriented investors to snap up higher-yielding equities.

Story continues below advertisement

Mr. Johnson looked at 225 dividend-yielding equities that trade on the Toronto Stock Exchange but don't fall into the usual categories of oil and gas companies, real estate investment trusts and pipelines. He calls these "diversified" equities, and they range from restaurants to media firms to transportation companies.

Despite the different underlying businesses, they have at least one thing in common: They outperformed the broader S&P/TSX composite index last year, with average price gains of 22.7 per cent, versus 14.4 per cent for the index.

Just as impressive, the higher-yielding equities (defined as those with yields of 7 per cent or more) have been outperforming the lower-yielding equities by an average of 15 per cent in 2010.

Mr. Johnson believes the trend will continue into 2011, possibly because the Bank of Canada is expected to remain cautious about raising interest rates given the uncertainty of the economic recovery and the strong Canadian dollar.

Higher-yielding equities whose distributions are sustainable look particularly attractive. These names include EnerCare Inc., Leisureworld Senior Care Corp., Student Transportation Inc., Labrador Iron Ore Royalty Corp., Armtec Infrastructure Inc., Superior Plus Corp., Pizza Pizza Royalty Income Fund, Bell Aliant Inc. and Yellow Media Inc.

He also identified a handful of lower-yielding names that could raise their distributions, given that they have relatively low payout ratios. These names include: K-Bro Linen Inc. (with a 5.9 per cent yield and a 55 per cent payout ratio), Davis + Henderson Income Corp. (5.7 per cent yield, 60 per cent payout ratio), Genivar Inc. (4.9 per cent yield, 60 per cent payout ratio), Boyd Group Income Fund (5.3 per cent yield, 40 per cent payout ratio) and AutoCanada Inc. (3.3 per cent yield, 30 per cent payout ratio).

Report an error
About the Author
Investing Reporter

David Berman has been writing about business and investing since 1995. He has written for a number of magazines, including Canadian Business and MoneySense. He worked at the Financial Post as an investing writer and daily columnist before moving to the Globe and Mail in 2008. More

Comments are closed

We have closed comments on this story for legal reasons. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.

Combined Shape Created with Sketch.

Combined Shape Created with Sketch.

Thank you!

You are now subscribed to the newsletter at

You can unsubscribe from this newsletter or Globe promotions at any time by clicking the link at the bottom of the newsletter, or by emailing us at