You cannot understate the importance of having a well-diversified mix of income-generating investments. The recent collapse of global economies has shown us why you need to have a second source of income. A passive stream of steady or recurring income can be reinvested, and you can benefit from the power of compounding.
We’ll take a look at three top dividend investments on the TSX that you can consider adding to your portfolio.
A telecom heavyweight
In the current market that is uncertain and volatile, you need to identify stocks that are somewhat recession-proof. One such sector is the telecom space, and BCE (TSX:BCE)(NYSE:BCE) is a top stock for income investors.
This Canada-based telecom giant has a dividend yield of 5.7%. BCE provides wireless, wireline, TV, and internet subscription services. Further, BCE also has a wide array of media assets as well as ownership in sports teams.
The telecom business is a mature segment. However, it is a secure and extremely essential service in today’s technology age. People will continue to pay their mobile and internet bills, which means BCE’s cash flows will remain stable.
BCE continues to invest heavily in the home security segment as well as 5G technology, which will be the next revenue driver for telecom stocks. This company has a huge market presence in Canada, which will help it.
BCE stock is trading at a forward price-to-sales multiple of 2.2 and a price-to-book value of 2.7.
A pipeline giant
When it comes to Canadian dividend stocks, you are unlikely to miss out on energy giant Enbridge (TSX:ENB)(NYSE:ENB). This stock has lost momentum recently due to its exposure to the highly volatile oil market.
Enbridge is North America’s largest energy infrastructure company. It operates over 23,000 miles of natural gas and 17,000 miles of crude oil pipelines in North America. Moving commodities in pipelines is a cheaper way of transport compared to railways or trucks. Enbridge’s huge network makes it critically important to the entire continent.
Despite a challenging energy market, this heavyweight increased dividends by almost 10% in 2020. This indicates a forward yield of 7.2%. As Enbridge generates over 90% of EBITDA via fee-based contracts, its cash flows are relatively secure, which made the dividend increase possible.
During the recent earnings call, Enbridge management reaffirmed its initial 2020 guidance. The company sold $400 million of non-core assets in the first quarter to improve liquidity and cut costs by $300 million. It also announced capital-expenditure cuts amounting to $1 billion.
A banking leader
Another dividend-paying company is Canada’s banking leader Toronto-Dominion Bank (TSX:TD)(NYSE:TD). The high unemployment rate and the expected rise in default rates drove the stock lower in 2020. TD Bank recently announced its fiscal second-quarter results and allocated a massive $3.2 billion of provisions for credit losses.
This resulted in a 50% decline in net income and earnings per share. Its capital ratio was also down by 70 basis points at 11%. But it still stands well above the regulatory requirement of 10.25%.
TD stock is currently trading at $62.43, which is 20% below its 52-week high. This pullback has meant the stock’s forward yield is a healthy 5.1%. TD stock has gained over 10% since the last week of May, as analysts expect this to be the peak for credit loss provisions.
The Foolish takeaway
There is still a lot of uncertainty in the market. The dreaded coronavirus has wiped out billions in market value due to lower consumer demand across industries. It’s difficult to predict when the economic spending will return to pre-COVID-19 levels. This is why you need to invest in stocks that are market leaders with a strong balance sheet and the ability to sustain dividend payments across economic cycles.
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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.