Given that our best Canadian dividend stocks list is consistently the most popular article on our site, I guess we shouldn’t be surprised at the number of questions we get that go something along the lines of:
“Why do you guys like Canadian National Railway so much, there is barely any dividend yield there. Why not load up on [fill in high yield stock here].”
Different investors have different goals when it comes to what they want in a dividend stock. Personally, we tend to agree with dividend expert Mike Heroux in emphasizing consistent dividend growth, and overall Earnings Per Share (EPS) over pure yield. But for others looking for more immediate income, high yielding stocks are the key to paying their bills today (as opposed to banking on dividends + capital gains to build a nest egg years down the road).
Top 7 High Yield Stocks in Canada
*Note: This is not a stock screen of the highest yielding stocks in Canada, it’s our picks out of the pool of stocks that have relatively high yields. For example Gibson Energy (GEI) has a 6.05% yield, but given the company’s volatility and small market cap, we would never recommend investing in it.
1) Canada’s “Big Six” Banks
- RBC (RY) – 3.39%
- Bank of Montreal (BMO) – 3.51%
- TD Bank (TD) – 3.50%
- National Bank of Canada (NA) – 3.48%
- CIBC (CM) – 3.96%
- Scotia Bank (BNS) – 4.32%
Ok, so I’m cheating right off the bat by only using one spot to invest in Canadian bank stocks. If you’re a patient investor there is just a lot to love here. Sure, if Canadian housing crashes in a worst case scenario there could be some headwinds, but the accompanying high interest rate would mean that the banks saw increased earnings from deposit vs lending spreads.
We know that these companies make money in all markets, and that they enjoy rewarding their shareholders. They’re not “cheap” at the moment, but they are very reasonable priced compared to many other stocks.
There is an interesting theory when it comes to the bank stocks, that if you simply buy shares in the one that has the highest yield, you’ll come out ahead in the end. The idea would be that the banks overall tend to revert to the mean, and the highest yield usually indicates which bank has seen their share price beat up a bit for some reason. Personally, it’s not my thing, but it’s an interesting idea.
2) Power Corp (POW) – 5.15%
Another “boring” Canadian financial company that just seems to make money in all types of economic environments. Going to get disrupted by new technologies? Simple, just buy the new technologies and win no matter what direction the winds blow.
Their early stage investing of Fintech companies, alongside their very profitable legacy lines of business just continue to churn out profits for this Canadian stalwart. Tough to find a safer 5%.
3) Keyera Corp (KEY) – 6.32%
It’s not my favourite of the mid-stream Canadian companies (see the next two entries for more details), but it is the one that is most dedicated to rewarding shareholders, and holds the top spot on the TSX high yield stocks list.
It’s tough to go wrong betting on natural gas at the moment. Sure, rising interest rates can be rough on capital-intensive companies, but the Canadian energy sector as a whole just looks really well positioned for the short- and medium-term. See our list of the best Canadian energy stocks for more suggestions.
4) Enbridge (ENB) – 6.11%
This was my pick of the year last year (2021), and I’m not too proud to say that I told you so.
Combine that juicy capital gain with a yield of 8% (at the time), and you have one heck of a total return!
I’ve since added to other positions before Enbridge just because I feel that its “can’t miss” status isn’t quite as obvious now that the share price has caught up to the yield a bit. It’s still a great company, and obviously with the world’s renewed focus on energy stability, it’s a super solid bet to continue to pass along juicy yields.
5) TC Energy (TRP) – 5.21%
Closing out our run of Canada’s mid-stream companies is TC Energy. It might actually be the best positioned for long-term capital gains increases, but it currently offers the lowest yield (perhaps signaling the market’s confidence in the stock and pushing the share price higher).
It’s tough to go wrong with any of these mid-stream companies at the moment, as quantities of oil and gas haven’t been in this high demand for a long time, and railway companies seeing labour cost pressures that make pipelines even more attractive.
And it’s not like a 5.21% yield is low!
6) Canadian Natural Resources (CNQ) – 3.87% + Maybe a Special Dividend?
It’s super rare that you find a company paying a nearly-4% yield – while at the same time having a payout ratio of around 30%. That gives you some idea of just how much cash CNQ has floating around on its balance sheet right now.
I’m always conscious of coming in too late on a trend, and obviously if Russian oil gets market access in the short-term then CNQ could find its profits falling back down to Earth. That said, this oil giant was able to trim costs admirably during the downturn, and appears to be a lean money-making machine in its current form.
Already up roughly 35% this year, I don’t know how much runway is left on the capital gain side of things, but folks looking for high yield stocks in 2022 will love the potential that this company has for a special one-time dividend this year. I’ve seen several analysts whispering about this development over the last few weeks.
It’s certainly possible given the fact that CNQ managed to raise dividends during the pandemic!
Note: A special dividend is when the Board votes to pay shareholders a one-time payment in addition to the normally-scheduled cheques being sent out.
7) Bell Canada (BCE) – 5.43%
Yawn – another super safe company that will just keeping sending you money each year. While I personally prefer Telus (T) for it’s long-term value, there is no denying that any of Canada’s telecommunications stocks are great at rewarding high-yield-loving shareholders.
Mike Heroux at Dividend Stocks Rock (my go to source for yield info) likes to call Bell a “Deluxe Bond”. You get that 5%+ yield, with the potential for some capital gain returns as well.
While inflation might play havoc with some companies’ ability to sustain earnings, I believe the solid Canadian telecommunications oligopoly will continue to just pass those increased costs along to their customers and keep those profit margins right where shareholders want them.
Best Canadian High Yield ETF: ZWC – 6.17%
If you’re looking for a Canadian high yield ETF, you could do a lot worse than ZWC.
There are a few higher yielding ETFs out there at the moment, but ZWC’s diversification and 7.18% average yield over the last five years is quite impressive.
ZWC is able to generate this high yield by stuffing their fund full of Canadian banks, mid-stream companies, and telecommunications giants (not surprising given the list above), along with a solid helping of utilities and natural resource exposure as well. No single stock makes up more than 5.3% of the total holdings.
Then ZWC uses a unique covered call options strategy to give it a further high yield boost – at the cost of some capital gains going really well. The idea here is that the fund will sell a call option on the stocks that they own as part of this ETF.
What happens is that the people buying these options gets the right (or “option”) to buy these stocks from the ETF if the price goes up during a specific time frame (usually the next 30-90 days).
So, either the stock price goes down – and ZWC keeps the stock plus pockets the price paid for the option.
Or the stock price stays the same and/or goes up a small amount – and ZWC keeps the stock plus pockets the price paid for the option.
Or the stock prices goes up by a substantial amount – and ZWC is forced to sell the stock for solid profit, but loses out on whatever the difference is between what they were forced to sell at, and what the stock is now worth. This is often referred to as a “capped upside” because if a stock does really well there is a ceiling on how much of the gain that ZWC will get to enjoy.
Most investors that want high yielding stocks are happy to sacrifice the potential for large capital gains in exchange for a steady reliable income-producing portfolio builder.
FAQ About High Yield Stocks in Canada
What is The Highest Yield TSX Stock in 2022?
Well, it depends on what exactly you mean by “highest yielding stock”.
If you mean “stock” as in common shares of a traditional corporation, then that would be Keyera mentioned above.
If you mean “stock” as in anything that I can buy on Toronto Stock Exchange, then there is an interesting high-risk options called the Labrador Iron Ore Royalty Corporation (LIFZF).
Given that it’s currently offering a forward yield of 13.67% it often raises a few eyebrows.
This corporation owns 15% of the Iron Ore Company of Canada (IOCC) which (as one might expect) is a large iron ore producer located in Newfoundland and Labrador. In addition to owning a big chunk of the parent company, the Royalty Corporation also gets a 7% gross royalty plus a dime for every tonne of iron that comes out of the ground.
While the IOCC obviously has to pay workers, this interesting little offshoot of an investable entity obviously doesn’t have much additional costs on its own (just some small administrative budget lines), so it can pass along its earnings right to shareholders.
Essentially, it’s one way to bet on the price of iron.
While that might turn out well for you, it’s also an incredibly volatile ride given the realities of investing in Canadian commodities.
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