Every company eventually ends up dealing with headwinds at some point. Wall Street often runs for the hills when this happens, even if the company in question has a very real chance of surviving, and perhaps even thriving, over the long term.
This is why turnaround investing is so attractive to a lot of investors. Add in lofty dividends, and the story gets even more attractive. Which is why more-aggressive income investors will want to examine Toronto-Dominion Bank (TD 1.44%), Bank of Nova Scotia (BNS 1.07%), and EPR Properties (EPR 0.17%) today.
What does Toronto-Dominion Bank do?
Toronto-Dominion Bank, more often just called TD Bank, is one of the largest banks in Canada. Banks in that country are heavily regulated, giving the largest players entrenched industry positions.
All of that regulation has also led large banks like TD Bank to operate in a generally conservative fashion. That's the foundation that investors need to keep in mind as they examine the stock's attractive 5.1% dividend yield, which is historically high for the bank.
NYSE: TD
Key Data Points
The Canadian business isn't a big worry for TD Bank. The big worry is the company's U.S. banking operation, which has run afoul of regulators with its money laundering controls. Because the U.S. bank was used to launder money, TD Bank has been forced to pay a large fine, is investing heavily in upgrading its controls, and is under an asset cap.
That last one is going to be a lingering problem since it effectively means it can't grow its U.S. business until it has fully appeased U.S. regulators. That could take a few years, during which time TD Bank's growth will be slower than it was hoping for, since the U.S. business was supposed to be the company's growth engine.
That said, TD Bank increased its dividend after the resolution with U.S. regulators was announced, so it seems unlikely that the issue will lead to a dividend cut. And then there's the strong Canadian business to fall back on. With a lofty yield, TD Bank looks like a fairly low risk, high reward turnaround stock right now.
What does Bank of Nova Scotia do?
Bank of Nova Scotia, often referred to as Scotiabank, is another large Canadian bank. Thus, its foundation is nearly as strong as that of TD Bank.
The big difference is that Scotiabank skipped over the U.S. market to focus on South America as it looked to boost growth. That didn't work as well as planned, however, leaving the company with a lofty 5.3% dividend yield.
Scotiabank is refining its approach, which will likely be a multiyear effort. However, the hope is that it will improve the bank's performance relative to its peers, which seems reasonable.
NYSE: BNS
Key Data Points
The main effort here is to exit South American markets that haven't lived up to expectations while simultaneously investing in markets with more potential. That includes a renewed focus on the U.S., which was highlighted by Scotiabank's recent purchase of nearly 15% of KeyCorp (KEY 2.50%). Management has also made early progress on exiting less attractive markets.
While it is nice to see management taking quick action, the market at this point is in a show-me mood with Scotiabank after years of laggard performance. That said, if you are willing to move a little earlier than most, you can collect a hefty yield while you wait for the bank's strategic moves to flow through into its financial results.
What does EPR Properties do?
Shifting gears a little, EPR Properties is a real estate investment trust (REIT) focused on owning experiential properties. The business and the stock got slammed during the coronavirus pandemic since many of its tenants were effectively closed down because they weren't considered essential businesses.
EPR Properties suspended its dividend and then, when the worst of the situation had subsided, brought the dividend back at a lower level. It is still reworking its portfolio in an effort to improve its long-term outlook.
NYSE: EPR
Key Data Points
The biggest issue is that about 36% of rents come from movie theaters. Rental coverage among the REIT's theater tenants is worse today than it was prior to the pandemic, so this is a big problem that has to be addressed. Management is selling properties and reworking leases.
That said, the rest of the portfolio is actually in better shape today than it was prior to the pandemic. Its tenants rent coverage -- pre-rent operating profits divided by rent -- stands at 2.6x today versus 2.0x in 2019. There is very clear progress being made.
Now add in a third-quarter payout ratio of 66% in adjusted funds from operations, and the dividend actually looks pretty secure. If you can see the glass-half-full story here, you might also be interested in the huge 7.3% dividend yield.
Relatively low-risk turnarounds with high yields
Companies don't find themselves in turnaround land because things are going well, so there are risks to consider when you look at TD Bank, Scotiabank, and EPR Properties. However, each seems well on its way toward righting the ship, suggesting that the risk-reward balance is tilted in investors' favor.
And you can buy each of these stocks for less than $500, though you might find that you like them enough to put even more money to work.
