The TSX Index already bounced significantly off the March low, but the market still offers investors some top dividend picks for Tax-Free Savings Account (TFSA) investors.
Let’s take a look at three stocks with high yields that might be attractive for a buy-and-hold portfolio.
Enbridge
Enbridge (TSX: ENB)(NYSE: ENB) reported Q1 2020 adjusted earnings of $1.7 billion or $0.83 per share. This was actually up from $0.81 per share in the same period last year.
Distributable cash flow (DCF) was essentially the same and Enbridge reaffirmed its DCF guidance for the year at $4.50 to $4.80 per share.
Enbridge bulked up its available liquidity to $14 billion, so it has adequate capital to ride out the downturn. The company is also reducing operating costs by $300 million and has deferred about $1 billion in capital projects due to the pandemic disruptions.
Volumes are down on the Liquids Mainline system as a result of reduced demand for crude feedstock by refineries that produce jet fuel and gasoline. The pipeline network historically runs near full capacity and should see a slow ramp up over the coming months as the economy reopens.
Enbridge is working on $10 billion in secured capital projects through the end of 2022, of which $5.5 billion remains to be spent.
The stock appears oversold at the current price of $43 per share and the dividend should be safe. Investors who buy today can pick up a 7.5% yield.
CIBC
CIBC (TSX: CM)(NYSE: CM) is Canada’s fifth-largest bank with a market capitalization of roughly $40 billion.
The company earned adjusted net income of $441 million in fiscal Q2 2020 — a 68% drop from the same period last year. The hit came from a jump in provisions for credit losses (PCL) to $1.4 billion. This amount is not an actual loss, but an estimate of potential losses on loan defaults.
A V-shaped recovery could result in the actual hit being much lower. An extended downturn with unemployment remaining above 10% could push the losses higher.
CIBC finished the quarter with a CET1 ratio of 11.3%, which means it should have ample capital to get through the recession.
The bank maintained its dividend through the Great Recession and investors should see the same thing occur this time. CIBC was arguably in worse shape 10 years ago than it is today.
The stock traded at $110 in February and dipped below $70 in March. The current price of $93.50 should be attractive for buy-and-hold investors. The dividend now provides a 6.2% yield.
BCE
BCE (TSX: BCE)(NYSE: BCE) trades near $57 per share at the time of writing and offers a 5.8% dividend yield. The stock’s 12-month high is around $65, so there is decent upside opportunity as the economy recovers.
The risk?
Rising interest rates would be the main risk for investors. BCE tends to compete with GICs for income-seeking funds due to its perceived safety. Right now, most of the Canadian banks are offering GICs with rates below 2%. If that drifts up toward 3% or 3.5%, you could see money move out of BCE toward the zero-risk alternatives.
The U.S. Federal Reserve recently said it sees no rate hikes until at least 2022. The Bank of Canada probably won’t move to the upside before the Fed. As such, BCE should continue to be a solid pick for conservative investors seeking reliable yield.
The bottom line
Enbridge, CIBC, and BCE are top-quality companies that pay attractive dividends that should be safe.
All three stocks deserve to be on your radar for an income-focused portfolio. If you only buy one, I would probably make Enbridge the first choice today.
