The stock market reflects a country’s economy, which is determined by what is produced and consumed in the nation. Canada is known for its oil and mining resources that it exports to America. Investing in something you are good at is like flowing with the tide. When you swim in the direction of the current, your speed increases and effort reduces. Canada’s prime investment opportunities flow with the tide, giving you higher dividend yields.
Canada’s dividend-yielding blue chips
The three biggest contributors to Canada’s gross domestic product (GDP) are real estate, manufacturing, oil and gas, and mining. Its biggest exports are oil and gas. The manufacturing sector is not a good dividend payer, but real estate and oil and gas are. And the combination of the two is energy infrastructure.
A company that engages in constructing and leasing houses and commercial real estate, and producing and transmitting electricity and natural gas is ATCO (TSX:ACO.X). It is the parent company of Canadian Utilities and enjoys a 30-year track record of growing dividends annually. Its stock price has dipped to its pandemic low as the Canadian economy has slowed and is closer to a recession.
The current weakness in the real estate market, industrial production, and a dip in natural gas prices is putting pressure on ATCO’s stock price. But looking at the company’s history, it has survived the 2009 Financial Crisis, 2015 oil crisis, and pandemic without any dividend cuts because of its robust business model. While its $10.8 billion debt and a lower credit rating (BBB+) make investors skeptical in a weak economy, its blue-chip status gives it a cushion of scale and easy financing to withstand a recession.
ATCO is a stock to buy at the dip and expect a recovery because of its cyclical nature. Buying this stock during the economic weakness will help you lock in a higher dividend yield for decades and one that grows every year. In the last 10 years, it has increased dividends at an average annual growth rate of 10%, although the growth has slowed to 3% since 2020.
But once the economy starts recovering, the stock price could surge and so could its dividend growth rate, as ATCO is a resilient company that is in a sector which is a key contributor to Canada’s GDP.
Enbridge – a high dividend-yielding stock
Another blue-chip company that has become a prime investing opportunity in the bear market is Enbridge (TSX:ENB). The stock is facing the heat of weak GDP growth and will remain weak as fears of a recession loom.
Investors were unhappy with Enbridge’s decision to buy American gas utility companies as they felt the former was overpaying. But that does not dampen Enbridge’s long-term dividend prospects. If you aim to get a fixed amount every year, now is the time to buy this stock and lock in an 8.14% dividend yield.
Enbridge’s low-risk business model pays a comfortable 60-70% of its distributable cash flow (DCF) as dividends. This DCF is the cash flow left after capital spending and debt payments. The acquisition will increase Enbridge’s debt and outstanding shares. But it will also bring stable cash flows sufficient to maintain the current dividend.
The aim of acquiring gas utilities is not to grow dividends but to safeguard their dividends. As the energy industry transitions to greener alternatives, Enbridge is looking to increase its exposure to gas and greener sources.
Commercial real estate, another big contributor to Canada’s GDP, is currently declining amid high-interest rates. Once the interest rates come down, real estate will gather momentum. RioCan REIT (TSX:REI.UN) is at a sweet spot with a comfortable distribution payout ratio of 59% and a high presence in the Greater Toronto area retail space.
Unlike other retail REITs, its tenant base is highly diversified. No single tenant accounts for more than 5% of rental income. This diversification backfired during the pandemic, and RioCan slashed distributions. But this diversification could work in favour of an economic slowdown.