A dividend yield is a simple math equation that divides the annualized dividend by the current stock price. If the price of a stock is falling, the yield has to rise if the dividend hasn't changed.
That's what makes Bank of Nova Scotia (BNS 0.72%) and Agree Realty (ADC 0.14%) so interesting. If you are trying to find good high-yield dividend stocks, here's why you'll want to look at these two companies in June.
Scotiabank is working to improve performance
Bank of Nova Scotia, or Scotiabank as it is more commonly known, is one of the largest banks in Canada. The Canadian banking sector is highly regulated, leaving the industry's giants with entrenched positions.
The regulatory environment has also created a conservative ethos within the country's largest banks. That's the foundation at Scotiabank, which has paid dividends without interruption since 1833.
Image source: Getty Images.
That said, Scotiabank has taken a different tack on growth. Most of its peers have expanded into the U.S. market, but Scotiabank has focused on South America.
That's a higher-risk decision and, frankly, it hasn't worked out as well as it hoped despite the long-term growth potential that emerging markets offer relative to developed ones. Scotiabank trails its competitors on key metrics like earnings growth and return on equity.
The bank isn't ignoring the problem and has undertaken a new direction. It is focusing on the markets with the best growth prospects, like Mexico, and de-emphasizing markets that don't have as much appeal, like Colombia.
This will be a multi-year process, but the bank is supporting the dividend as it works through it. There is no dividend increase planned in 2024, but a hike in 2025 seems highly likely.
So why buy today? The uncertainty here has left Scotiabank with a huge 6.5% dividend yield, well above the yield of the average U.S. bank of around 3%. That's a big lift in yield for what is likely to be a fairly modest increase in risk.
NYSE: BNS
Key Data Points
Agree Realty is still a growth story
Agree Realty's yield isn't quite that high, but at around 5%, it is still very attractive. Notably, the dividend has been increased annually for about a decade at this point, with the dividend growth over the past 10 years sitting at roughly 6% a year. Those are pretty compelling numbers for what amounts to a fairly boring real estate investment trust (REIT).
Agree is what is known as a net lease REIT. That means that its tenants have to pay most property-level operating costs for the assets they occupy. Moreover, Agree is focused on the retail sector, so it owns similar assets that are relatively easy to buy and sell. And finding new tenants, should there be a vacancy, isn't particularly hard, either.
There is a risk stemming from the fact that net lease properties are single-tenant locations, but across the REIT's 2,100 or so properties, the risk posed by any single tenant or property is fairly low.
NYSE: ADC
Key Data Points
The stock is down around 25% from 2022 highs, which makes it particularly interesting right now. That drop is largely related to the rise in interest rates, which increases costs for property owners like REITs.
That's a legitimate concern, but property markets will eventually adjust to the rate environment, as they have many times before. And then this REIT will be able to start growing its business more quickly again.
How big could it get? Net lease REIT giant Realty Income owns over 15,400 properties. With Agree's long runway for growth, income investors will want to take a look at this fast-growing REIT while Mr. Market is still in a dour mood.
Use June to your advantage
While there's probably no rush to buy either Scotiabank or Agree, you don't want to sleep on these opportunities, either. At some point, investors will likely catch on to them and realize that the risk/reward profile appears tilted toward the reward side of the equation. Take the time in June to dig into Scotiabank and Agree -- and one, if not both, may end up in your portfolio.
