Uncertainty around the geopolitical landscape remains high as we enter 2019. Global stock markets have taken a beating over the past few months, and it isn’t clear whether or how soon they will recover. While there are no foolproof methods for beating a bear market, many investors turn to dividend-paying stocks when the market goes down.
The incentives for doing so are twofold. First, dividends provide income, which can help smooth out significant market losses. Second, good dividend-paying stocks are often less volatile, offering great diversification benefits to investors. Let’s consider two companies with high dividend yields to consider in these uncertain economic times.
Pembina (TSX:PPL)(NYSE:PBA) is a transportation and midstream service provider that operates both in Canada and the U.S. The company had a better year than most, outperforming both the TSX and the oil and gas industry in terms of market returns over the past 12 months.
PPL’s financial performance is solid. The company continues to grow its profits. Over the past five years, PPL’s net income increased by 29%, while its return on equity and net profit margin increased by 80% and 161%, respectively. PPL only managed to increase revenues by 10% over the same period, which means the company is finding ways to cut down expenses.
PPL’s capital spending has increased by 25% over the past five years, which has contributed to the company’s improving financial strength. Management recently announced capital spending of $1.6 billion for 2019, over half of which will go to the maintenance and expansion of pipeline systems and infrastructures. These are, of course, critical to PPL’s performance.
PPL currently has a beta of 0.33. The beta is a measure of volatility. PPL’s current beta means it less volatile than the market (which has a beta of one, by definition). The midstream company also offers a dividend yield of 5.83%, which is much higher than the TSX average. Though PPL opted to discontinue its dividend-reinvestment plan last year, the company’s dividend history and growth are impressive.
BCE (TSX:BCE)(NYSE:BCE) is one of the largest communication providers in Canada. The company shares about 90% of the market with two other corporations in a country in which wireless penetration has yet to reach 100%.
Being one of the biggest players in the telecom industry has its advantages. BCE enjoys stable revenues since most of them come from subscribers. While switching costs are not high, most customers are not inclined to switch as long as the service provided matches certain standards.
There are at least two ways BCE can increase its profits. The first is by investing in more advanced technological innovations to improve the quality of its services. The second is by increasing the number of its subscribers.
BCE has recently focused on the latter. Each quarter saw increases in the company’s number of subscribers that exceeded analysts’ expectations. In the first quarter, BCE added 68,487 new subscribers, while adding 153,561 and 178,000 in the second and third, respectively.
The boost in its number of subscribers has helped BCE improve its financial performance. The company’s results in each quarter was stronger than the last. Although BCE’s stock performed slightly worse compared to the telecom industry, the company outperformed the TSX.
BCE currently offers a 5.54% dividend yield and has maintained a 5% annual dividend increase policy for a long time. The company’s current beta is 0.33, which means it is less volatile than the market.
The bottom line
Nobody knows what the future holds. Considering the market’s recent performance, though, investing in low-risk and high-yield stocks may just be what your portfolio needs.
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Fool contributor Prosper Bakiny has no position in the companies mentioned. Pembina is a recommendation of Dividend Investor Canada.