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Market Correction: 2 Top Dividend Stocks to Buy on the Recent Pullback

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The latest market pullback finally gives investors who missed the spring rally another chance to buy top dividend stocks at cheap prices.

Let’s take a look at two high-yield stocks that might be interesting picks for an income portfolio right now.

Enbridge

Enbridge took a hit last week when Michigan forced the company to shut down Line 5. The pipeline runs through the straits of Mackinac where Lake Huron meets Lake Michigan. Enbridge said an extended shutdown of the pipeline would put fuel supplies in Michigan and Ohio at risk.

Considering the potential negative impact to consumers and businesses in the two states, it is unlikely the pipeline will remain closed for very long.

Nonetheless, the issue is just one more challenge among many that pipeline companies face these days, whether they are trying to get new major projects built or keeping existing ones running.

Enbridge is best known as a liquids pipeline player. It also owns natural gas distribution businesses and renewable energy assets.

The crash in the oil market coupled with a drop in fuel demand due to pandemic lockdowns put a dent in throughput on Enbridge’s Mainline system in recent months. The Q2 results will likely be ugly, but demand should ramp up in the second half of the year, as global economies get back on track.

Enbridge isn’t an oil producer, but it moves oil to refineries. The drop in demand for end products such as airline fuel forced refineries to cut back output or even shut down in recent months.

Short-term pain is expected, but Enbridge is positioned to deliver solid revenue and cash flow once the recovery picks up speed. The company has a solid balance sheet and maintained its 2020 guidance for distributable cash flow when it reported the Q1 results.

The stock trades at $40.50 at the time of writing and offers a dividend yield of 8%. The dividend should be safe, so investors get paid well to wait for a rebound. Enbridge traded above $57 in February.

BCE

BCE is Canada’s largest communications firm with world-class wireless and wireline infrastructure providing customers with mobile, internet, and TV services. The company also has a media group that includes sports teams, radio stations, a television network, specialty channels and an ad business. Retail locations spread out across the country round out the assets.

Pandemic lockdowns hit the advertising and retail groups hard, but the media division should deliver better results in the coming months. In addition, BCE will reinstate extra internet usage fees beginning in July. This could lead to a surge in plan upgrades.

Why?

Many companies will maintain work-from-home rules until the fall. When school starts in September, kids in some areas will only be physically at school half the time. This might keep thousands of previous commuter parents based at home, even if their companies open up the office. As a result, elevated internet usage is expected to continue for some time.

BCE generates solid free cash flow to cover capital expenditures and the dividend. The reliability of the payout is one reason BCE has been a favourite among dividend investors for decades. The trend should continue.

BCE trades near $57 at the time of writing and provides a 5.8% dividend yield. The stock traded above $65 in February, so there is decent upside potential.

Low interest rates bode well for BCE. The company can reduce debt costs and free up more cash for dividends. In addition, the stock tends to become more popular with income investors in a low-rate environment.

The bottom line

Enbridge and BCE pay reliable dividends with attractive yields. The stocks appear cheap right now and should be solid picks for an income-focused portfolio.

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The Motley Fool owns shares of and recommends Enbridge. Fool contributor Andrew Walker owns shares of Enbridge and BCE.

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