A pessimistic view held by many is that dividends are paid only by those corporations who could not find beneficial capital budgeting projects which would increase the value of the firm. As a result these companies would provide cash distributions to their shareholders rather than invest back into themselves. Contrary to this minority view, high growth technology companies have began to implement a dividend policy. With billions of cash on their balance sheet, companies like Cisco (Nasdaq:CSCO) are able to accomplish both - company growth and dividend payouts.
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However, while tech companies offer an attractive investment alternative for income seeking investors, many high-quality dividend-paying Canadian stocks unfortunately could slide under the radar. While energy trusts, such as Penn West Energy Trusts (NYSE:PWE) and Enerplus Resource Fund (NYSE:ERF), among others, are the best known Canadian entities to pay high yields, other alternatives exist as well.
Beat Down Financials
Manulife Financial Corporation (NYSE:MFC) carries a 3.8% dividend yield and trades below its book value. Like most financial service firms, Manulife took a huge stock price hit in 2008 as its shares fell from $37 to $14.50 over just a couple months. While its shares have not rebounded, and have actually fallen by another $2 as the company fell 300% below analyst expectations in its latest earnings report, Manulife is a fairly safe investment with $21.39 billion dollars of cash on its balance sheet.
Sun Life Financial (NYSE:SLF) is another beat down Canadian financial firm which currently yields 5.1%.
The energy industry is the primary engine of Canada's economy, with major internationally known companies such as Suncor Energy (NYSE:SU) and EnCana (NYSE:ECA), which offer respective yields of 1.2% and 2.9%. Despite that these yields are not as attractive as those offered by royalty trusts and many other Canadian companies, these firms support strong fundamentals and have produced capital gains which dominate the return of the S&P within the last 10 years.
With 10-year treasury yields hovering slightly above 2.55%, even McDonalds (NYSE:MCD), a blue chip low growth company which is not well known for its dividend payout, is currently yielding 75 basis points above U.S treasuries.
The Bottom Line
Dividend seeking investors are generally moving away from low yield treasuries and are beginning to invest into such safe blue chip companies as McDonalds, Cicso and Microsoft (Nasdaq:MSFT) which recently raised its dividend yield by 23% to $0.16. Nonetheless, investors should not neglect to Canada as a safe income source. (These dividend stocks should add value to any portfolio. To learn more, check out Best Dividend Stocks.)
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