Investing Amid COVID-19: Rely on These 2 TSX Dividend Aristocrats

Bet on these two TSX Dividend Aristocrats to sail smoothly amid COVID-19 crisis.

| More on:
Golden crown on a red velvet background

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Amidst the COVID-19 pandemic, investing in companies that have raised their dividends consistently over the past several years should be your mantra. However, not all TSX Dividend Aristocrats are worth investing in. Investors should focus on companies with low-risk business models and that can generate ample cash flows to defend and grow their dividends in the future.

Two such TSX stocks that come to my mind are Pembina Pipeline (TSX:PPL)(NYSE:PBA) and Canadian Utilities (TSX:CU), and here’s why.

Pembina Pipeline 

Pembina Pipeline stock is my top dividend pick, thanks to its diversified revenue streams and highly contracted business. The company’s forward dividend yield stands high at 6.8%. However, investors should note that despite the high yield, Pembina’s dividends are pretty safe. 

Pembina’s diversified revenue base not only reduces volume risk but also increases its exposure to the other commodities and credit-worthy counter-parties. The company’s underlying business remains strong, thanks to the fee-based, long-term contracts. Further, about 70% of these contracts don’t have the price or volume risk.

The pipeline company’s strategic acquisitions and continued business re-investments have helped it in transforming into a highly contracted business that generates resilient cash flows. Further, Pembina’s payouts are covered by fee-based cash flows that do not have direct commodity exposure, thus eliminating the risk of a future dividend cut. Last year, about 73% of its fee-based distributable cash flows covered all of its common share dividend payments, which is an encouraging sign.

Pembina paid about $4.5 billion in the form of dividends over the last five years. Moreover, its dividends have increased by 6.5% annually during the same period. Pembina’s low-risk and highly contracted business model and stable, fee-based cash flows should continue to support its future dividends. 

Canadian Utilities

If dividend investing is your strategy, then Canadian Utilities stock needs no introduction. For those who are new to the dividend investing, Canadian Utilities is another stock, besides Pembina, that is a must-have in your portfolio. Canadian Utilities has the longest-running history of consistently increasing its dividends. To be exact, the utility company has increased its dividends for 48 years in a row, which is commendable.

The company’s consistent dividends are backed by its recession-proof business and predictable cash flows. Canadian Utilities generates about 95% of its earnings from the rate-regulated utility business, which implies its future payouts are safe. Besides, the long-term contracted assets account for the rest of the 5% of its earnings.

Investors should note that its investments in the rate-regulated utility business and long-term contracted energy and infrastructure assets provide a strong foundation for consistent dividend growth in the future. Moreover, its capital investments, an increase in utility rate base, and cost efficiencies should continue to drive earnings, in turn, its cash flows.

Investors should keep an eye on the company’s sustainable earnings growth, which is an indicator of its future payouts. Canadian Utilities expects its rate base to continue to grow at about 3% annually over the next three years, which should continue to drive its sustainable earnings and dividends.

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 Sneha Nahata has no position in any of the stocks mentioned. The Motley Fool recommends PEMBINA PIPELINE CORPORATION.

More on Dividend Stocks

edit Back view of hugging couple standing with real estate agent in front of house for sale
Dividend Stocks

Why Real Estate Stocks Are a No-Brainer Addition to Your Portfolio

Real estate stocks, especially REITs, offer some distinct advantages over other types of stocks, making them must-have additions to most…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

3 Top TSX Dividend Stocks to Buy for Monthly Passive Income

Top TSX stocks with monthly dividends now trade at cheap prices for investors seeking passive income.

Read more »

Canadian Dollars
Dividend Stocks

Create Free Passive Income and Turn it Into Thousands With 1 TSX Stock

If you can't afford to invest, you can certainly create passive income another way and use that to invest in…

Read more »

Payday ringed on a calendar
Dividend Stocks

Canadian Dividend Investors: 2 ETFs That Pay Monthly Income With High Yields

Dividend ETFs often pay out monthly distributions compared to dividend stocks.

Read more »

think thought consider
Dividend Stocks

2 Stocks I Own and Will Buy More of if They Fall

Stocks tend to go up in the long run. Therefore, buying a basket of diversified stocks on dips should lead…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

2 Oversold TSX Dividend Stocks to Buy for Passive Income

Blue-chip dividend stocks such as Royal Bank of Canada and Manulife Financial pay investors a tasty forward yield.

Read more »

TFSA and coins
Dividend Stocks

TFSA Passive Income: 3 Solid Stocks to Earn $355 Every Month

Looking to earn steady passive income? Here are three solid TSX stocks that can help you earn a worry-free passive…

Read more »

Technology
Dividend Stocks

RRSP Investors: 2 Stocks to Buy in August for Dividends and Capital Gains

RRSP investors can still find top TSX dividend stocks trading at cheap prices today for a buy-and-hold portfolio.

Read more »