Canadian investors are searching for ways to boost the returns they get on their savings.
One popular strategy involves owning dividend stocks inside a Tax-Free Savings Account (TFSA).
The TFSA contribution room is currently as high as $52,000 for Canadians who were at least 18 years old in 2009, when the program started. That means an investor who picks up a 5% yield could earn $2,600 per year in tax-free dividends.
Let’s take a look at two high-yield stocks that don’t often make the headlines.
Russel Metals is a steel distributor with businesses located in Canada and the United States. The company operates in three core segments: energy products, metals service centres, and steel distribution.
The downturn in the oil sector hit the energy group pretty hard, and Russel saw its stock take a significant dip through the worst part of the rout.
Despite the pullback, management maintained the dividend, which is a good sign for income investors who want a reliable payout. The stock has recovered significantly, but it still provides a yield of 5.5%.
A stronger economy and improving conditions in the energy sector should be positive for Russel and its shareholders.
Power Financial is a holding company with investments in insurance and wealth management businesses in Canada. The firm also has a stake in a European holding company that owns positions in some of the continent’s top global companies, including Pernod Ricard and LafargeHolcim.
Rising interest rates tend to be good for insurance companies, as they boost the return the businesses can earn on the funds they have to set aside for potential claims.
Rates normally rise during times of economic growth, which often leads to strong stock markets and improved profits for wealth managers.
Power Financial raised its dividend earlier this year. The current distribution provides a yield of 4.5%.
Should you buy one?
Both stocks pay above-average dividends that should be safe.
At this point, I would probably split a new investment between the two names to get diversification by sector and geography, while picking up an average yield of 5%.
Russel Metals provides good exposure to Canada and the United States, as the energy sector and the economies improve. Power Financial is a good way to benefit from rising interest rates and offers a bit of a play on some of Europe’s top international companies.
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