Are These the Best Canadian Dividend Stocks for a High-Rate Environment?

Considering their solid underlying businesses, these three Canadian dividend stocks are excellent buys in this high interest-rate environment.

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Last week, the U.S. Bureau of Labor Statistics announced the consumer price index rose by 3.7% in September compared to the previous year. It was higher than analysts’ expectations of 3.6%. With inflation remaining sticky, the Federal Reserve expects it will not decline to its guidance of 2% before 2026. So, the Central Banks will likely stick to their restrictive monetary policies, thus keeping interest rates higher in the near-to-medium term.

A prolonged higher interest rate environment could lower global growth, thus hurting equity markets. Given the uncertain outlook, investors could look to earn a stable passive income by investing in the following three top Canadian dividend stocks.

Enbridge

Enbridge (TSX:ENB) is one of the top dividend stocks to have in your portfolio in this inflationary environment. It operates a regulated midstream business, with around 98% of its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) generated from regulated assets and long-term contracts with blue-chip customers. Besides, around 80% of its adjusted EBITDA is inflation-indexed, thus minimizing the impact of rising prices on its financials. 

Meanwhile, the company is working on acquiring three gas utility assets in the United States from Dominion Energy. The acquisitions could double the company’s gas utility business while raising the contribution from the segment to 22% of the its total adjusted EBITDA. The increase in cash flows from low-risk utility assets would lower the company’s risks while creating long-term value for its investors. Management is also continuing with its $19 billion secured capital program, expecting to put around $6 billion of projects into service by the end of next year.

Enbridge’s future payouts look safer, given its stable cash flows and healthy growth initiatives. With a quarterly payout of $0.8875/share, ENB’s forward yield stands at 8.07%.

Pizza Pizza Royalty

Pizza Pizza Royalty (TSX:PZA) owns and operates Pizza Pizza and Pizza 73 brand restaurants through franchisees. Given its asset-light business model, rising interest rates will not have much of an impact on its financials. Besides, the company continues to post strong performance, with its royalty pool sales growing by 11.2% in the June-ending quarter. Same-store sales growth of 9.4% and a net addition of 16 restaurants to the royalty pool drove its sales.

Supported by its solid performance and healthy cash flows, the company has raised its monthly dividend seven times since April 2020. With a monthly dividend of $0.075/share, its forward yield stands at a juicy 6.83%. Meanwhile, the pizza franchisor’s menu innovation and promotional activities could continue to drive its same-store sales. Besides, the company is expanding its restaurant network and expects to raise its restaurant count by 3–4% this year. So, I believe Pizza Pizza Royalty will continue to deliver solid financials in the coming quarters.

Canadian Natural Resources

Oil prices have risen over the last few months amid supply concerns and increasing demand, especially from China. The voluntary production cuts by Russia and Saudi Arabia, and the escalating Israel and Palestine conflict have raised supply concerns. Higher oil prices could benefit oil-producing companies, such as Canadian Natural Resources (TSX:CNQ).

Meanwhile, the company is boosting its production capacity with a capital investment of $5.4 billion this year. Besides, the company has reduced its debt levels amid solid cash flows over the last three years. The company has also rewarded its shareholders by repurchasing $8.6 billion worth of shares since the beginning of 2021. Considering these factors, I expect CNQ to deliver strong financials in the coming quarters.

Notably, the company has rewarded its shareholders by raising its dividends at an annualized rate of 21% for the previous 23 years. Meanwhile, its forward yield stands at 3.95% and trades at a cheaper NTM (next 12 months) price-to-earnings multiple of 10.1, making it an attractive buy.

Bottom line

Given their solid underlying businesses, stable cash flows, and healthy growth prospects, these three Canadian dividend stocks are excellent additions to your portfolio in this higher interest rate environment. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Rajiv Nanjapla has no position in any of the stocks mentioned. The Motley Fool recommends Canadian Natural Resources and Enbridge. The Motley Fool has a disclosure policy.

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