An annual 8% yield is more than the 7% compounded annual growth the TSX Composite Index gave in the last five years. An 8% yield, when compounded, can double your money in nine years, as per the rule of 72. An 8% yield can give you a considerable passive income. And three stocks are currently offering this high yield. It is better to grab them before their stock price rises.
Timbrecreek Financial stock
Timbrecreek Financial(TSX:TF) stock has recovered more than 50% from the 2022 fall triggered by the series of interest rate hikes. However, there is room for more 11–15% upside till the stock returns to its 2021 level of $9–$9.40. The short-term lender to income-generating REITs saw an 11% year-over-year decline in its operating income in the June quarter as many REITs repaid their loans and new loan uptake was slow. This slowed the overall loan turnover as REITs stalled their development plans till finances became affordable.
The situation is reversing. The Bank of Canada took the first step and initiated a series of interest rate cuts in June. So far it has announced three 25 basis point rate cuts reducing the interest rate to 4.25%. More rate cuts are likely. This could build momentum in the lending space and drive Timbercreek's loan turnover.
The stock is currently trading around $8.10 and has a yield of 8.5%. But this yield won't last long as the stock price could surge with every rate cut announcement. Now is a good time to buy in bulk and lock in a high yield. Since the stock gives monthly payouts you can opt for a dividend reinvestment plan (DRIP) and compound your dividends monthly.
A $5,000 investment in Timbercreek today can buy 612 shares of TF that will pay $35 per month. Assuming the stock price grows to $9.40 and maintains this average, the DRIP can compound your dividend and give you $78 per month in passive income by 2033, assuming the dividend per share remains the same ($0.69).
BCE stock
BCE (TSX:BCE) is another good dividend stock offering an 8.5% yield. The stock fell amid telecom sector consolidation and mounting debt from 5G infrastructure spending. The telco is still trading near its 10-year low of below $50. While the rising interest rates inflated the dividend payout ratio to 113%, cost-cutting and restructuring could improve cash flows. And the recent rate cuts could bring significant savings on interest expense, easing the payout ratio.
BCE offers a DRIP and also grows dividends by 3% annually. While there is uncertainty around the telco growing the dividend in 2025 amid the weak profits, it will likely increase dividends in the long term as it unlocks the 5G potential.
The 5G infrastructure will connect more devices to the cloud and bring artificial intelligence to the edge. BCE is adding cloud services to cater to these next-generation needs.
Slate Grocery REIT
While the above two stocks offer DRIP, Slate Grocery REIT (TSX:SGR.UN) does not. What the REIT offers is an 8.3% annual yield paid in 12 monthly installments. The REIT pays dividends in US dollars, and Canadian investors benefit from exchange rate fluctuations. The REIT has a resilient business model as its tenants are majorly grocers, which means the occupancy rates will remain high in all economic cycles.
Any possible dividend cuts by BCE and Timbercreek Financial will be absorbed by Timbercreek Financial, preparing your passive income portfolio for all economic cycles. You can use the dividend payouts from Slate Grocery REIT to make some opportunistic investments in high-growth stocks under $5, like Ballard Power Systems.