It is time for the mid-year review of your portfolio. The first half was quite different than last year, with energy stocks seeing a correction and tech stocks seeing a surge. The biggest blow came to bank stocks after three U.S. banks collapsed in March. The signs of a stiffening economy were visible as some small- and mid-cap dividend stocks announced dividend cuts to preserve cash to service their debt. June brings with it uncertainty and bearishness for the second half. It is a perfect time to lock in high yields.
Top three +6% dividend stocks to buy in June
Dividend stocks are relatively less volatile than growth stocks and could give steady returns even in uncertain markets. But they are not immune to macro and sector weakness. There is a possibility that some stocks might pause dividend growth or even cut dividends.
I selected June dividend stocks looking at three parameters: dividend payout ratio, cash flow forecast, and stock price volatility. Here are three stocks I believe can withstand an economic downturn without dividend cuts.
Enbridge (TSX:ENB) stock fell almost 6% year to date as energy stocks saw a correction. Oil prices receded to the US$70- US$78 range against the June 2022 peak of US$125. The correction was expected as the U.S. Fed has been hiking interest rates to curb rising oil prices. America is using this opportunity to fill its Strategic Petroleum Reserve (SPR), which reduced to alarmingly low levels.
As an oil and gas pipeline operator, Enbridge is likely to see its pipelines run at full capacity as Canada exports oil to America. But the price correction has also corrected Enbridge’s stock price to its average trading price point of $50.
Enbridge is currently spending on gas pipelines to tap the North American liquefied natural gas (LNG) export opportunity. It expects to grow its distributed cash flow (DCF) by 3% every year till 2025 and accelerate it to 5% as some pipelines become operational. In the meantime, Enbridge has maintained its dividend payout ratio at 60% of the 2022 DCF. These figures indicate that the dividend king can continue to grow dividends by 3% for the next two years.
If you buy this stock in the June dip, you can lock in a 7% dividend yield, higher than its average annual yield of 6%
Rogers Sugar (TSX:RSI) is a consumer staple stock resilient to the macroeconomic environment. The stock price surges whenever there is a supply shortage as demand remains stable. It surged in February as operational issues at a competitor affected supply. But the stock has returned to its average trading price, creating a buying opportunity.
Rogers Sugar paid 72% of its free cash flow (FCF) as dividends in the last 12 months. It expects earnings to remain stable as improved sugar prices offset weakness in the maple business from high inflation. The company is also expanding its Montreal sugar refinery and Toronto distribution centre to enhance capacity and reduce cost, which could increase its stock price in the future. Rogers Sugars can sustain its dividends even in a weak economic environment.
If you buy the stock at its current level of $5.8, you can lock in an annual dividend yield of 6.2%.
BCE (TSX:BCE) is a dividend aristocrat you can buy on any given day. Unlike the above two stocks, BCE has been hovering in the $60-$65 range. It is on track to ride the 5G opportunity that can create an ecosystem for artificial intelligence (AI) at the edge. The stock moves in tandem with the TSX Composite Index, but that does not impact its dividends.
BCE’s first-quarter FCF fell 88% due to high depreciation and interest expense. But this dip is temporary. The company maintains its full-year 2023 FCF outlook at 2-10% growth, hinting that it can maintain its annual dividend at $3.87/share. The dividend payout ratio is elevated as all telcos have been on a capital spending spree to roll out 5G.
If you buy the stock below $62, you can lock in an annual dividend yield of 6.28%.