At a time when dividend stocks in the S&P 500 index yield an average of just 1.3%, it can seem like dividend investors seeking out high yields are looking for a needle in a haystack. Luckily, if you look hard enough, there are still some really attractive high-yield opportunities to be found.
Two that you'll want to look at today are Bank of Nova Scotia (BNS +1.76%) and EPR Properties (EPR +0.41%). Here's a quick primer to get you started.
Scotiabank: Paying dividends since 1833
Bank of Nova Scotia, more commonly known as Scotiabank, is one of the largest banks in Canada. Canada has a highly regulated banking sector, effectively assuring industry giants like Scotiabank have largely entrenched positions. In addition, conservative government regulations have resulted in a cautious ethos at the largest banks. To put it another way, Scotiabank isn't a big risk-taker.
Image source: Getty Images.
That said, it has historically taken a slightly different approach toward growth. Most of its Canadian banking peers have expanded into the United States. Scotiabank focused its growth efforts on South America. Although that region is higher risk, it hasn't upended the company's incredible dividend history. Bank of Nova Scotia has paid uninterrupted dividends since 1833, which is less than a decade away from 200 years. And yet the current 6.2% dividend yield is at the high end of the banking sector. For reference, SPDR S&P Bank ETF (KBE +0.59%) yields just 2.8%. Compared to the average bank, Scotiabank looks like it is trading at a big discount.
Why? Scotiabank has lagged its peers on key metrics like earnings, return on equity, and operating leverage, among others. Investors are clearly concerned with the company's performance. But management has a plan to narrow the gap (including reducing its focus on South America); it will just take some time to mend the issue. The key here is the company is standing behind the dividend, comfortable that it can continue to support the payment while it works to improve performance.
NYSE: BNS
Key Data Points
Given its long history of paying dividends and conservative ethos, yield-seeking investors should probably give this Canadian banking giant the benefit of the doubt. And while you wait for Scotiabank's plans to unfold, you can collect a very generous 6.2% yield.
EPR Properties: The dividend is back and well covered
EPR Properties is a real estate investment trust (REIT) that is focused on owning experiential properties. The list includes things like amusement parks, ski resorts, and movie theaters. During the early days of the coronavirus pandemic, being the landlord of businesses that are specifically designed to bring people together in groups was tough. As a precaution, EPR suspended its dividend.
However, now that the world is getting better at living with COVID-19, EPR's dividend is back, and many of its tenants are in better shape than they were prior to the pandemic. That said, the movie theaters the REIT owns are still struggling because the movie industry itself has been facing long-term headwinds (including, but not limited to, the increase in streaming media at home). To put some numbers on that, movie theaters have rent coverage that is 1.7 times, about where that figure was before the pandemic. But the rest of the portfolio has rent coverage of 2.6 times, up from 2.0 times prior to the public health crisis.
NYSE: EPR
Key Data Points
EPR isn't sitting still: It is working with its theater tenants (rent coverage has been improving), selling assets where appropriate, reducing lease rates, and finding new tenants for vacant assets. It will take time for EPR to work through the theater industry headwinds given that theaters make up around 37% of the REIT's rent roll. This is a big part of the reason why the shares yield a hefty 7.9%. The average REIT, using Vanguard Real Estate ETF (VNQ +0.84%) as a proxy, yields just 4% or so.
While more risk-averse investors might want to tread with caution here, there's a silver lining for more aggressive types. The adjusted funds from operations (FFO) payout ratio is around 66%, based on the forward dividend and 2023 adjusted FFO. That's a very solid number and provides more than enough leeway for EPR to continue supporting the high yield while it continues to rework its movie theater portfolio. It's not a bad trade-off if you are willing to take on a little uncertainty.
There are always options
Dividend investors should never give up hope just because Wall Street is on an upward march. If you take your time and do some research, you can find companies that Mr. Market is worried about but that still appear to have solid long-term prospects. Scotiabank and EPR look to be in just such a position. There are definite headwinds at each company, but they seem more than capable of dealing with their issues while still paying you well to stick around.
