A relatively safe strategy for equity investors is to buy and hold quality blue-chip stocks in their portfolio. Typically, blue-chip stocks are equipped with strong fundamentals and enjoy a wide economic moat, allowing them to generate predictable cash flows across market cycles.
Several blue-chip stocks also pay investors a tasty dividend yield, making them less volatile compared to small-cap and mid-cap stocks. Here are three such quality TSX blue-chip stocks Canadian investors can buy in June 2023.
Royal Bank of Canada stock
The largest TSX stock in terms of market cap, Royal Bank of Canada (TSX:RY) is valued at $172 billion. Due to the banking crisis south of the border and a tepid lending environment, Royal Bank of Canada stock is currently down 17% from all-time highs, allowing you to buy the dip and enjoy a tasty dividend yield of 4.44%.
Due to higher provisions for credit losses (PCL) and higher provisions on impaired loans, RBC reported a net income of $3.6 billion in the quarter that ended in April. It was 14% lower compared to the year-ago period. The PCL on loans ratio was up 30 basis points due to unfavourable changes in credit quality and a worrying macro-outlook.
However, its pre-provision, pre-tax earnings stood at $5 billion — 1% higher year over year due to rising interest rates and strong loan growth in the Canadian Banking and Wealth Management divisions.
Priced at 11 times forward earnings, RY stock is trading at a discount of 10% compared to consensus price target estimates.
Hydro One stock
While bank stocks are cyclical, utility companies such as Hydro One (TSX:H) are recession resistant. Hydro One operates regulated transmission and distribution assets in Ontario. It is the largest electricity provider in the province and serves 1.5 million customers. Transmission accounts for 60% of the company’s rate base, with distribution assets accounting for the rest.
Hydro One pays shareholders an annual dividend yield of $1.19 per share, indicating a yield of 3.1%. Since its initial public offering (IPO) in November 2015, Hydro One stock has returned 136% to shareholders in dividend-adjusted gains, easily outpacing the TSX index in this period.
Enbridge stock
The final blue-chip TSX stock on my list is Enbridge (TSX:ENB), a well-diversified energy company. Despite multiple economic cycles, Enbridge has increased dividends by more than 10% annually in the last 25 years, showcasing the resiliency of its business model. It currently offers shareholders a dividend yield of 7.3%.
A majority of Enbridge’s cash flows are regulated and backed by long-term contracts, which are also indexed to inflation, making it immune to fluctuations in commodity prices.
Enbridge operates a low-risk pipeline business and has a sustainable distribution payout ratio of less than 70%, allowing it to reinvest in capital expenditures and reduce balance sheet debt.
The company forecasts to invest $17 billion in expansion projects through 2028, which should drive future cash flows and dividends higher. Despite an uncertain macro environment, Enbridge expects to increase distributable cash flows by 3% annually in the next two years.
It is also increasing investments in the renewable energy space, which currently accounts for less than 4% of adjusted earnings before interest, tax, depreciation, and amortization.
ENB stock is currently priced at a discount of 16% to consensus price target estimates.
