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3 Top Canadian Dividend Stocks With Yields Over 5%

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Dividend stocks with high yields continue to be an attractive option for income investors. As dividend yields are inversely proportional to the stock price, a high yield might indicate that the stock is undervalued and trading at a cheap valuation, providing investors with an opportunity for capital appreciation as well.

TransAlta Renewables

Shares of TransAlta Renewables (TSX:RNW) are trading at $18.15 at writing. The stock has gained 50.6% in the last year compared to the S&P 500 gains of 20.6%. Despite this impressive bull run, TransAlta Renewables has a forward dividend yield of 5.2%.

The company operates over 30 renewable energy facilities in Canada, Australia and the United States, generating over 2,400 megawatts of power annually.

TransAlta is part of the utility business, a recession-proof segment, making it one of the best defensive picks for investors.

TransAlta is expected to increase sales by 5.1% in 2020 while earnings are expected to rise by 9.7% this year. The stock is trading at a forward price-to-earnings multiple of 23, which might be expensive given the company’s growth metrics. As stated earlier, it’s one of the safest bets in a sell-off.

Analysts tracking TransAlta Renewables have a 12-month target price of $16 which is 12% below the current trading price.

Canadian Imperial Bank of Commerce

The Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) is one of the top Canadian stocks to bet on. It has underperformed the broader markets in the last year, but with a juicy dividend yield of 5.3%, CIBC is one of the best buys for dividend investors.

CIBC is one of the top five banks in Canada with a market cap of $48.6 billion. It provides personal and corporate banking services to individuals and businesses. In fiscal 2020, analysts expect company sales to grow 3.4% to $19.25 billion, while in 2021 sales are estimated to rise by 4.3% to $20 billion.

Comparatively, earnings are estimated to grow by 0.7% in 2020 and 4.2% in 2021. CIBC stock is trading at an attractive forward price to earnings multiple of 8.7.

It has increased dividend payments by 30% over the last five years and with a payout ratio of 50% can continue to keep doing so in the upcoming quarters.

Enbridge Inc.

Enbridge Inc. (TSX:ENB)(NYSE:ENB) is a domestic stalwart and has been a solid wealth creator for investors over the years. It has been one of the top-performing Canadian large-cap stocks since the start of 2019.

Enbridge stock has gained over 30% since 2019 and the company has a forward dividend yield of 5.9%. Enbridge stock is trading at a forward price to earnings multiple of 19 and analysts expect company earnings to fall by 1% in 2020 and then rise 9.1% in 2021.

The company can easily increase dividend payouts going forward as it expects distributable cash flow per share to grow at an annual rate of 5% and 7%. Last year, its distributable cash flow rose 21% to $9.2 billion.

Enbridge is part of an industry which has high entry barriers and regulations. It has pumped in billions of dollars in capital expenditure which in turn will drive top-line growth over the next few years.

The company’s stable cash flows, strong balance sheet and growth prospects make it a solid long-term buy.

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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.

The Motley Fool owns shares of and recommends Enbridge. Fool contributor Aditya Raghunath has no position in any of the stocks mentioned.

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