In the world of high-yield stocks, elevated dividend yields often come at a price – elevated risk. This means that we have to accept that the yield may not be so high for long and/or that we may incur capital losses.
But this is not always the case. Consider, for example, the following dividend aristocrats that are yielding as high as 7% today. In fact, these stocks all have a few of the best things in common – a stellar record of dividend growth, strong cash flows, and financial strength.
BCE: A telecom giant yielding 6.32%
BCE Inc. (TSX: BCE) is Canada’s leading telecom giant, boasting unmatched broadband and fibre optic networks. It’s also a leader in financial strength and shareholder value creation. In fact, BCE has decades of strong cash flow growth and shareholder value creation behind its belt. For example, over the last five years, BCE’s annual cash from operations has grown 12.6% to $8.3 billion.
Also, BCE’s dividend has grown at a compound annual growth rate (CAGR) of 5.5% since 2000. This is admittedly typical of a dividend aristocrat, but that doesn’t make it any less impressive. BCE has been able to achieve this by being the leader in an industry that has high barriers to entry, and executing with operational and financial excellence.
Today, BCE stock is yielding 6.32%. In my opinion, BCE stock is being mispriced as the market is consumed with fear and risk. Thus, this dividend aristocrat won’t be offering this juicy yield for long, as I expect BCE stock to rise.
Enbridge stock: Opportunity knocks
Enbridge Inc. (TSX: ENB) is another dividend aristocrat that, in my opinion, is being mispriced. Hence, its juicy 6.85% yield. Enbridge is one of Canada’s essential energy infrastructure companies with a vast North American presence. The company has a long history of being a vital part of the North American economy as well as a solid investment for its shareholders.
Enbridge stock has stood the test of time, as it benefits from a business model that protects it from inflation and the ups and downs of commodity prices. This, in turn, has allowed Enbridge to provide its shareholders with reliable, predictable, and growing dividend income. In fact, Enbridge’s dividend has grown at a CAGR of 11.1% in the last 22 years. It’s quite impressive, and BCE’s dividend growth rate kind of pales in comparison. Yet, it’s a reflection of Enbridge’s place in the North American economy as well as its value.
Despite Enbridge’s predictable business providing predictable and fast-growing cash flows, investors are skeptical. They see that the transition away from oil and gas is beginning, and they are understandably nervous about companies like Enbridge. Thus, we have Enbridge stock yielding 6.85% today.
In my view, this is a once-in-a-lifetime opportunity to buy into this strong business. I mean, Enbridge controls over 70% of Canada’s take-away oil capacity and it’s heavily relied upon by U.S. refineries. A transition is happening but it won’t happened overnight. In any case, Enbridge has been preparing it for quite some time now. And given its financial strength, its connections, and infrastructure, Enbridge can be a full participant in this transition.
TC Energy: The ultimate dividend aristocrat
Last but not least, TC Energy Inc. (TSX: TRP)) is another one of Canada’s energy infrastructure giants. Its assets consist of more than 92,600 kilometres of natural gas pipelines, 4,900 kilometres of oil pipelines, 653 billion cubic feet of gas storage, and 6.600 megawatts of power generation.
TC Energy is currently plagued by cost overruns at its Coastal GasLink project. This is not a small issue and cost overruns could ultimately come in north of $1 billion. However, as long-term investors, we have every reason to look beyond this. Because demand is booming and TC Energy is seeing record flows.
This all came together last quarter with a 10% increase in both earnings and EBITDA. TC Energy’s management has been using a lot of this cash flow to reduce debt, but also to continue to invest in the many projects available in this “opportunity-rich” environment.
TC Energy is currently yielding 7.06%. Its dividends have grown at a CAGR of 7.24% over the last 22 years.
