On one hand, higher interest rates have triggered a re-rate of stock valuations, causing stocks generally to trade lower. On the other hand, as a result, it’s now raining opportunities in dividend stocks that investors can buy for more income.
Here are some of the most massive dividend income Canadians can pocket today. If held in taxable accounts, they pay eligible Canadian dividends that are favourably taxed at a lower income tax rate than your job’s income because of the dividend tax credit.
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Emera yields 6.3%
Regulated utilities like Emera (TSX:EMA) have been a good source of dividend income in diversified portfolios. It enjoys predictable returns from its investments. However, in a higher interest rate environment, it is hit with a higher cost of capital and interest expenses. So, the returns on its investment projects are lower than previously expected. For example, its trailing 12-month interest expense is about 14% (or $107 million) higher than in 2019.
As a result, the stock has retreated close to 12% year to date. At $45.76 per share at writing, the utility stock offers a dividend yield of almost 6.3%. Its payout ratio is estimated to be approximately 89% of earnings this year. So, over the medium term, it should be more prudent with its dividend growth, which might be about 4% per year. At the recent quotation, the analyst consensus price target represents a decent discount of roughly 18%.
Get a 7.6% dividend from Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) is the highest-yielding big Canadian bank that offers a whopping dividend yield of almost 7.6%, which is hard to dismiss for income investors. The bank’s earnings have been especially weak with higher loan-loss provisions.
Its payout ratio is estimated to be elevated at about 65% of earnings this fiscal year. That said, its dividend remains sustainable. In the worst-case scenario, it’ll experience a dividend freeze, as we saw around the 2020 pandemic and the global financial crisis of 2007-08. Simply put, it is regulated to do so and would just be a prudent move to increase the reserves of the bank and improve the stability of our financial system.
Year to date, the Canadian bank stock is down north of 15%. At $55.97 per share at writing, the analyst consensus price target represents a good discount of about 18%.
Enbridge yields 8%
Lastly, we have Enbridge (TSX:ENB) stock, which has a fabulous dividend-growth track record of about 27 consecutive years. Unfortunately, as the company has grown to be massive, it has become super hard for growth. Don’t be fooled by its 10-year dividend-growth rate of about 11.8%. Its dividend growth over the medium term will likely be about 3-5% per year. Thankfully, higher interest rates have triggered a decline of close to 16% in the stock.
At $44.53 per share, it is good for a dividend yield of almost 8%. It generates stable and predictable cash flows that support a massive dividend. It also maintains a sustainable payout ratio of approximately 65% based on its distributable cash flow. At the recent quotation, analysts believe ENB stock trades at a discount of about 13%.
