Not all top-yielding stocks are good buys. Sometimes, the dividend yield looks higher, but that’s only due to the fall of the share price. We saw a similar example last year when Algonquin Power was offering a yield close to 10%. But that was due to its massive stock price correction. The yield reverted to mean soon after the company trimmed its dividend this year.
Stable businesses with visible earnings growth are generally good candidates for dividend investing. Canada has several such stocks that offer superior dividend yields and decent growth prospects. Here are three such top-yielding TSX stocks.
Energy infrastructure company TC Energy (TSX:TRP) is a popular name among conservative, income-seeking investors. It carries 25% of natural gas consumed in North America. Apart from oil and gas pipelines, it has interests in power-generation facilities with a combined generating capacity of 4.2 gigawatts.
The regulated nature of its business and long-term contracts make TC Energy’s earnings much more stable. In the last decade, its earnings have grown by over 7% compounded annually. Irrespective of the oil and gas prices, TC Energy continues to grow stably, driven by its long-term, fixed-fee contracts.
TRP stock currently yields 6.6%, way higher than the TSX stocks average. It has increased shareholder payouts for the last 22 consecutive years, highlighting dividend stability. It aims to increase payouts by 3-5% annually for the next few years.
While TSX energy stocks at large have returned 20% in the last 12 months, TC Energy stock has returned -9%. Its underperformance is quite evident, as higher oil and gas prices did not materially drive its financial growth. However, it has returned a decent 9% compounded annually in the last decade.
Another low-risk TSX stock that offers handsome dividends is Emera (TSX:EMA). It serves 2.5 million customers in the U.S., Canada, and the Caribbean. Emera derives a significant chunk of its cash flows from regulated operations, which facilitates earnings and dividend stability. Electric services contribute 84% of its revenues, while the rest comes from its gas services.
Utilities stand tall in volatile markets, as they have a low correlation with broader equities. EMA stock has returned 10% since November 2022 but has underperformed in the last year. It currently yields 5.2%, higher than the TSX utility space. Notably, it has raised shareholder payouts for the last 16 consecutive years.
It’s not only Emera; almost all TSX utility stocks underperformed last year amid rapidly rising interest rates. However, as the rate-hike cycle could pause later this year, utility stocks like EMA will likely outperform.
Canadian telecom giant stock BCE (TSX:BCE) is currently trading at a dividend yield of 6.3% — the highest in the industry. It increased shareholder payouts by 5% for 2023, despite inflation biting its last year’s earnings.
BCE aims to expand its market share in the wireless segment and thus, has been investing aggressively in the network infrastructure. This will likely accelerate its top-line growth in the next few years. BCE looks well positioned compared to its top two peers, driven by its scale and sound balance sheet.
Note that these slow-moving, dividend-paying stocks are not for everyone. While BCE is a less volatile and high-dividend payer stock, it may not be suitable for investors with a higher risk appetite. However, BCE is an attractive bet if you are looking for a low-risk, moderate-return proposition.