Dividend stocks on the TSX have been on the rise since the start of the year. With interest rates so low and the prospects of higher inflation, many Canadian investors have exited bond positions to buy risk-on assets. Certainly, no common share dividend is ever 100% certain. Unlike bonds, dividend stocks have no obligation to pay a dividend. Yet, the reality is, it is a really bad omen when companies have to lower or cease their dividend payouts.
Quality of dividend over quantity
Therefore, don’t just look for high-yielding dividend stocks. Look for businesses that are growing cash flows and can hence increase dividend rates over time. Likewise, look for stocks with really good near and long-term catalysts. Most importantly, look for dividend stocks that have strong economic moats, great management teams, solid balance sheets, and just all-around good businesses.
Here are three cheap TSX dividend stocks that meet most or all of these criteria and look attractive today.
Enbridge: A top TSX pipeline stock
Enbridge (TSX:ENB)(NYSE:ENB) is attractive because of its massive network of oil and gas pipelines across North America. In fact, 20% of North America’s oil flows through its network. This network is crucial for North America’s economy and trade across the world. New pipelines are nearly impossible to build (i.e., Keystone XL), so Enbridge’s assets hold a very dominant competitive position.
Certainly, this TSX stock has been facing some challenges, especially with its Line 5 pipeline crossing under the Great Lakes. However, that pipeline is economically significant for Americans and Canadians alike. I believe at least a temporary resolution should be found.
In the meantime, Enbridge continues to diversify its operations into more green-focused investments. It is quickly building a large renewable power portfolio and is looking to invest into hydrogen assets as well. Today, the stock pays a well-covered 7% dividend, which management just raised by 3% in December 2020.
Algonquin Power: A leading North American utility
As of late, TSX utility and renewable power stocks have been beaten down. I think this makes for an attractive long-term entry point. Algonquin Power (TSX:AQN)(NYSE:AQN) is a great stock to buy for safety, dividends, and growth.
70% of its assets are regulated utilities. Its remaining renewable power segment is contracted under long-term (average 13 years) power-purchase agreements. Consequently, this stock generates very stable earnings and cash flows. This supports its 4.5% dividend, which it just increased 10% in the first quarter 2021.
This stock has lost 11% since the start of the year. This is despite Algonquin’s attractive capital growth program. It is investing over $9 billion, of which it hopes to accrete an annual five-year earnings per share compounded annual growth rate (CAGR) of 8-10%. All around, this stock presents growth and safety in parallel.
Brookfield Infrastructure Partners: A leading TSX infrastructure stock
A TSX stock with a diversified mix of infrastructure assets (somewhat like those above) is Brookfield Infrastructure Partners (TSX:BIP.UN)(NSYE:BIP). It owns and operates utility, midstream, transport, and data/cell tower assets across the globe. I like this business for its scale across the globe. As a result, it can deploy capital whenever there is a market dislocation or attractive value/distressed acquisition opportunities.
While acquisition growth might be somewhat slower in 2021, it has some great opportunities to harvest investments at market peak valuations. Likewise, much of its current portfolio benefits from strong economic trends.
This stock is a great inflation hedge because many of its assets garner increased volumes and inflation-linked rate hikes as economic factors heat up. As a by-product, this TSX stock should generate strong organic growth in this environment.
Today, it pays a 3.8% dividend. While it is not “cheap” by the traditional definition, this stock has an incredibly long history of raising its dividend. In fact, since inception it has a dividend-growth CAGR of 10%. Considering this, it is not unforeseeable that this TSX stock could beat the rate of inflation by at least a factor of two or three over the years to come.