3 Canadian Blue-Chip Stocks That Yield at Least 6.3%

Income investors can consider these blue-chip stocks for the potential of earning juicy income, but note that they’re higher risk versus GICs.

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Blue-chip stocks have underlying businesses that are well established and financially sound. High inflation is increasing our cost of living. If you need to boost your income to combat inflation, consider these high-yield blue-chip stocks.

Allied Properties REIT

I know I would raise controversy by categorizing Allied Properties REIT (TSX:AP.UN) as a blue-chip stock right now. The office real estate investment trust (REIT) has lost half of its value from its 2020 peak of about $59 per unit. In hindsight, though, at the peak, the stock was in a bubble at a multiple of 26 times its funds from operations (FFO). That was an expensive valuation for a REIT that grew its FFO per unit by 2.6% from 2017 to 2020.

Today, the stock is weighed by concerns of the new normal of office space occupancy post-pandemic. At $28.69 per unit at writing, it trades at roughly 11.9 times FFO. Despite higher uncertainty in its operating environment, the blue-chip stock maintained its dividend-growth streak of about 11 consecutive years by raising its cash distribution by 2.9% last month. Its sustainable 2022 payout ratio was 70% of free cash flow.

Because of its depressed valuation, the dividend stock now offers a yield of almost 6.3%, compensating income investors who are willing to take on higher risk compared to the riskless one-year Guaranteed Investment Certificate (GIC) rate of about 5%.

BCE stock

If you prefer to avoid the office REIT space like many other investors, you might turn to another blue-chip dividend stock that offers a similar yield — BCE (TSX:BCE). Although a capital-intensive business, the big Canadian telecom has shown commitment to paying an increasing dividend. It just raised its dividend by 5.2% this month, which marks the beginning of its 15th consecutive year of dividend increases.

Income investors should be reassured to hear that its capital program is dialing down, which should improve its payout ratio over the next few years. Going into 2023, BCE had liquidity of $3.5 billion, which could help support its dividend payments along with its cash flow generation. For reference, it paid out $3.45 billion of dividends and generated free cash flow of $3.23 billion in 2022.

At $61 per share at writing, BCE is fairly valued and offers a yield of just over 6.3%.

Enbridge stock

Enbridge (TSX:ENB) stock is another blue-chip stock that has a track record of paying stable dividends. The massive energy infrastructure company with an enterprise value of about $174 billion has paid increasing dividends for about 27 consecutive years.

Although it had fabulous dividend growth — a rate of 12.2% in the last 15 years, going forward, investors should expect much lower dividend growth of about 3-5%. Therefore, investors can anticipate getting a big chunk of their returns from its rich dividend that yields almost 6.9% at $51.61 per share at writing. Analysts believe the stock trades at a discount of approximately 11%.

Investor takeaway

Even if these high-yield stocks experience little growth, they can still provide satisfactory long-term returns to shareholders through their outsized cash distributions. Just be careful to pay fair valuation or better for their shares. Of the three, Allied Properties is the most undervalued, trading at a discount of about 20%, according to analysts. However, it also has the greatest level of uncertainty.

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 Kay Ng has positions in Allied Properties REIT. The Motley Fool recommends Enbridge. The Motley Fool has a disclosure policy.

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