Dividend Deluxe Bonds normally fall into the high-yield stocks. However, to be classified as a deluxe bond, they need more qualities than that… Learn how to differentiate dividend deluxe bonds from dividend traps and know if you need them!
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You’ll Learn
- A dividend deluxe bond is a company that pays a yield above 4% and that provides a dividend growth policy to at least cover the inflation. What other metrics do we need to find deluxe bonds? What kind of growth can we expect?
- Most deluxe bonds are stable businesses that would generate a good market cap. Therefore, most small caps would not fit in this category.
- There’s nothing like examples to better understand a concept so let’s share some! For each, Mike tells us if it’s a Dividend Deluxe Bond or a Dividend Trap and why. We start with a well-known pipeline: Enbridge (ENB).
- What about Arbor Realty Trust (ABR) that shows a yield above 11%? Isn’t such a high yield a red flag?
- Mike doesn’t like Target (TGT) much. With now a yield over 4%, is it a dividend deluxe bond or just a defensive play?
- Canadian Banks had it harder this year. Are they dividend deluxe bonds or dividend growers?
- A popular stock among high yielders is Main Street Capital (MAIN). Does it meet the requirements for a Deluxe Bond?
- What about Labrador Iron Ore (LIF.TO), showing a yield close to 9%? As a cyclical and volatile holding, is it stable enough?
- The ice seems thin between a Deluxe Bond and a Dividend Trap. How can we make the difference?
- How can investors avoid investing in a company on the verge of cutting its dividend thinking it is a dividend deluxe bond?
- In the end, does Mike think that investors need deluxe bonds in their portfolios?
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Hello Mike – in listening to your episode #152 about stocks “Deluxe Bonds” you mentioned something that I believe is incorrect – in talking about the banks you said that there is the concern that the provisions for bank loans already made may turn into netcharges and impact profits – when the banks increase provisions for bank loan they immediately charge earning (Income and Expense statement) – the incremental provision goes to the Balance Sheet and the counterpart goes to Expense – I make this observation because I like your program and I would not want someone to criticize your comments without you first clarifying – of course assuming I am correct
Hello Jose,
I might not have been clear with my explanation, but what I meant is that some of the PCLs could be recovered and then bring EPS up the following year. We have seen that after covid for example.
Cheers,
Mike.