Last week, Statistics Canada announced that Canada’s inflation in August jumped to 4% from 3.3% in July, higher than analysts’ expectations of 3.8%. Higher gasoline prices and increased shelter expenses drove inflation numbers higher. The rising prices have made investors nervous, which has led the S&P/TSX Composite Index to fall around 4% last week.
In this volatile environment, investors could invest in quality dividend stocks, which can strengthen their portfolios and deliver stable passive income. Here are three top dividend stocks with solid underlying businesses and high yields that you could buy right now.
With an impressive record of dividend growth for the previous 28 years and a high yield of 7.62%, Enbridge (TSX:ENB) would be my first pick. The midstream energy company generates around 98% of its cash flows from cost-of-service or contracted businesses. Besides, about 80% of its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) is protected against inflation, which is encouraging. So, the company’s cash flows are stable, irrespective of the economic outlook, thus allowing it to raise its dividends consistently.
Meanwhile, earlier this month, Enbridge signed an agreement to acquire three utility companies in the United States for US$14 billion. The announcement has made investors nervous as they are concerned about its rising leverage. However, with these acquisitions, the company will generate around 22% of its adjusted EBITDA from low-risk, high-quality gas utility businesses, thus strengthening its long-term dividend growth profile. So, I believe Enbridge would be an excellent buy at an NTM (next 12 months) price-to-sales multiple of 1.9.
BCE (TSX:BCE), a prominent telecom player, would be my second pick as telecommunication services are becoming essential in this digitally connected world. Amid the acceleration in digitization of business processes and growth in remote working and learning, the demand for telecommunication services is rising. Besides, the sector is highly capital intensive, thus creating an entry barrier for new entrants while generating stable cash flows for existing players.
Meanwhile, BCE is expanding its 5G and high-speed broadband network amid the growing demand. It expects to cover 85% of the Canadian population through its 5G network by the end of this year. Also, it hopes to add 650,000 new direct fiber locations this year. These expansions could continue to grow its customer base and increase its ARPU (average revenue per user), thus supporting its financial growth. So, I believe BCE’s future payouts are safe. Meanwhile, the company’s dividend yield currently stands at 7.20% and trades at an attractive NTM price-ot-earnings multiple of 16.5, making it an excellent buy.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS), which has been paying dividends consistently since 1833, would be my final pick. The company has raised its dividends at an annualized rate of 6.5% since 2000, with its forward yield currently standing at 6.70%. Amid the weakness in the banking sector, BNS has lost around 4% of its stock value over the last 12 months and trades at an attractive NTM price-to-earnings multiple of 8.8.
Meanwhile, the bank has strengthened its capital and liquidity metrics in the recently reported third-quarter earnings while raising allowances for future loan losses amid an uncertain economic outlook. Its CET1 (Common Equity Tier 1) capital ratio increased from 11.4% to 12.7%, while its LCR (liquidity coverage ratio) improved from 122% to 133%. Besides, the company’s strong presence in high-growth markets, such as Latin America, could support its financial growth in the coming years. So, I believe BNS would be a stellar buy at these levels.