3 Contrarian Stock Picks for a Yield-Focused Income Fund

Here’s why Inter Pipeline Ltd. (TSX:IPL) and another two high-yield dividend stocks might be interesting picks today.

The Motley Fool

A pullback in the utility and energy infrastructure sectors is giving income investors an opportunity to buy some quality dividend-growth stocks at attractive prices.

Let’s take a look at three companies that might be getting oversold.

Fortis Inc. (TSX: FTS)(NYSE: FTS)

Fortis has one of the best dividend track records in Canada, supported by steady growth through development projects and acquisitions. The business now has $49 billion in assets and is a top-15 utility company in the U.S. and Canada.

Management is working through a $15.1 billion capital plan that should increase the rate base by a compound annual growth rate of 5.4% through 2022. Among the developments is the Wataynikaneyap Power project, which will see the construction of 1,800 km of transmission lines to connect the power grid to 17 First Nations communities in northwestern Ontario. FortisOntario has the contract to construct and manage the transmission line.

Fortis has raised its dividend in each of the past 44 years. The current payout yields 4%.

The stock has pulled back from $48 last November to about $42 per share.

Inter Pipeline Ltd. (TSX:IPL)

IPL is a niche player in Canada’s oil patch, with conventional oil and oil sands pipelines as well as gas-processing assets. The company also owns a bulk liquids storage business in Europe.

IPL is seeing strong throughput on the pipeline segment and has decided to go ahead with its $3.5 billion Heartland Petrochemical Complex. The site should be finished by the end of 2021 and is expected to generate average annual EBITDA of up to $500 million.

The company raised the monthly dividend from $0.135 to $0.14 per share late last year and reported record net income for Q1 2018, so things are moving in the right direction. The stock currently trades for $25 per share, providing a dividend yield of 6.7%.

Algonquin Power and Utilities Corp. (TSX: AQN)(NYSE: AQN)

Algonquin Power owns US$9 billion in power generation, transmission, and distribution assets primarily located in the United States. The bulk of the businesses are clean energy operations, including solar, wind, and hydroelectric facilities.

Management is doing a good job of mixing strategic acquisitions with organic projects to drive growth and is returning more cash to shareholders. Algonquin Power just increased the dividend by 10%. The new distribution provides a yield of 5.4%.

The stock is down from $14 per share in November to about $12.50, giving investors an opportunity to buy Algonquin Power at a reasonable price.

Is one a better buy today?

Fortis, IPL, and Algonquin Power all pay dividends that should continue to grow at a steady pace. If you only choose one, I think IPL offers the best shot at some upside gains in the medium term, while providing a very attractive monthly payout.

Fool contributor Andrew Walker has no position in any stock mentioned.

More on Dividend Stocks

A worker overlooks an oil refinery plant.
Dividend Stocks

A 4.9% Passive-Income Stock I’d Put My Whole TFSA Contribution Into

This Canadian dividend stock’s 4.9% dividend yield, strong cash flow growth, and expanding infrastructure investments make it an attractive passive-income…

Read more »

cookies stack up for growing profit
Dividend Stocks

Low-Cost Ways to Earn Extra Income in Canada

These two affordable Canadian dividend stocks could help you turn modest investments into a source of regular extra income.

Read more »

monthly calendar with clock
Dividend Stocks

The perfect TFSA REIT: A 4.2% Yield With Monthly Paycheques

Killam Apartment REIT (TSX:KMP.UN) pays dividends monthly.

Read more »

A woman stands on an apartment balcony in a city
Dividend Stocks

Mortgage Rates May Rise Again, and so Could This Apartment REIT

CAPREIT offers rental exposure, although higher borrowing costs and softer occupancy make the opportunity more nuanced.

Read more »

telecom towers concept for wireless technology
Dividend Stocks

The Best Canadian Dividend Stock for Passive Income: My 1 Pick and Why

This Canadian dividend stock’s attractive dividend yield, improving operating cash flow, and growing electricity generation business make it compelling for…

Read more »

Child measures his height on wall. He is growing taller.
Dividend Stocks

Can a $200-a-Month Investment Grow Into Real Income? I Ran the Numbers

Can investing $200 a month build into a real dividend income stream? Here’s a look at how it can happen…

Read more »

group of jack-o-lanterns smile together
Dividend Stocks

4 of the Best Canadian Stocks to Buy and Hold in a TFSA

Explore the four Canadian stocks to buy and hold in a TFSA that can offer investors recurring dividend income and…

Read more »

workers walk through an office building
Dividend Stocks

Enbridge’s CEO Transition: Should Dividend Investors Be Worried?

Enbridge has a diversified business and predictable cash flows, while a strong pipeline of growth projects supports its dividend payments.

Read more »