3 Core Stocks Yielding Up to 5.3%

As a foundation for your portfolio, you need a collection of businesses that are strong, resilient, and durable.

| More on:
The Motley Fool

OK, I admit it! I own a few speculative stocks.

It’s a guilty pleasure. Some have a new gee whiz technology. Others an exotic mining project. All make for great conversation around the office water cooler.

However, I would be the first to confess that these stocks are only a little decorative décor. Just like a house, a good portfolio needs to be built on a sturdy foundation — a collection of proven businesses chosen for their industry dominance. That’s why it’s smart to devote a sizable portion of your portfolio — if not the whole thing — to solid, long-term holdings.

Earn a 5.3% dividend yield from North America’s energy boom

If I had one word to describe Enbridge Income Fund (TSX:ENF) it would be ‘boring’. But I mean that in a good way.

Pipelines and electricity generation tends to be a steady-eddy, slow-moving business. Investment decisions are made over decades and cash flows are highly predictable. Less than 5% of the company’s earnings is exposed to changes of commodity price, interest rates or currency fluctuations.

That doesn’t mean this stock hasn’t been good for shareholders, however. Over the past decade, Enbridge Income Fund has been able to crank out a steady 5% dividend growth. That’s more than enough to keep up with inflation.

Of course, when we’re discussing core holdings for a portfolio, the question is the sustainability of the business. Pipelines and power plants tend to be very capital-intensive due to their expensive right-of-way acquisition costs. In addition, new projects tend to have a huge NIMBY (Not In My Backyard) factor. That tends to keep competitors away.

This company hasn’t missed a dividend payment in 143 years

Royal Bank (TSX:RY)(NYSE:RY) has done the impossible. For 143 years the company has never failed to send out a dividend cheque to shareholders.

Think of everything that has happened since that time… wars…  recessions… bubbles… crises. Yet for Royal Bank it hardly mattered. Thanks to its sheer size and conservative business practices, the company sailed through every economic downturn Canada without skipping a single distribution.

Of course, just because a company has paid out a consecutive dividends for over 100 years is no assurance that it will continue to do so over the next century. As the old finance cliche goes, past performance is no guarantee of future results.

But when you buy one of the country’s most dominant companies — firms with a sustainable competitive advantage and show commitment to rewarding shareholders — you can count on that dividend to survive almost anything.

Pocket 3.7% from this wide-moat champion

With smartphones becoming the hub for people to interact and shop, the gatekeepers to that wireless superhighway like Telus (TSX:T)(TSX:TU) will see a growing demand for their services. Today, investors can pocket a 3.7% annual dividend.

However, more important than a tall yield is the sustainability of this distribution. The sheer cost of building a new wireless network is enough to keep most competitors at bay. This means Telus should be able to earn healthy returns for shareholders year after year after year.

And the strength of this competitive moat was tested last summer when Verizon, one of the best capitalized companies in the world, dropped its plans to expand into the Canadian market. When an American behemoth like Verizon can’t make the numbers work, you know you have a wide-moat stock.

Today, the company’s juicy 3.7% dividend comes from just over 30% of its profits — which is a very comfortable payout ratio. When you combine a sustainable payout ratio along with the stable business, Telus looks like a solid addition to any portfolio.

Foolish bottom line

Speculative stocks are fun and exciting. However, a good portfolio needs to be built around a solid core. As a foundation, you need a collection of businesses that are strong, resilient, and durable.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Robert Baillieul has no positions in any of the companies mentioned in this article.

More on Investing

question marks written reminders tickets
Dividend Stocks

Dividend Investors: Is BCE Stock a Buy Now?

BCE now offers a 7.9% dividend yield.

Read more »

A bull outlined against a field
Tech Stocks

Is a Bull Market Here? 4 Reasons to Buy Celestica Stock Like There’s No Tomorrow 

Celestica (TSX:CLS) stock has been a huge winner for investors this year, but there could be even more in the…

Read more »

Retirement plan

1 Retirement Savings Hack That Has Created Many Millionaires

Investors can retirement with $1 million in savings by investing in index funds such as the S&P 500.

Read more »

edit Taxes CRA
Dividend Stocks

CRA Money: 2 More Days to Boost Your Tax Refund!

Dividend stocks like Toronto-Dominion Bank (TSX:TD) can be great RRSP holdings.

Read more »

close-up photo of investor Warren Buffett
Stocks for Beginners

The Best Warren Buffett Stocks to Buy With $300 Right Now

These Warren Buffett stocks have long histories of growth, each offering their own reasons for why investors need them today.

Read more »

grow money, wealth build
Dividend Stocks

3 TSX Dividend Stocks With Yields Above 7% (But Are They Safe?)

These three dividend stocks all have ultra-high yields, making them some of the best to buy if you're looking to…

Read more »

oil and natural gas
Energy Stocks

3 Energy Stocks Already Worth Your While

TSX energy stocks could shine for much longer. Here's why Canadian Natural Resources (TSX:CNQ), Parex Resources (TSX:PXT), and another oil…

Read more »

Light bulb with jester hat perched on top
Dividend Stocks

3 Canadian Dividend Stocks With Payouts That Are No Joke 

Here are three top Canadian dividend stocks long-term investors would be remiss to ignore, particularly at these current valuations.

Read more »