Since October 2023, Canada’s bond market has been on a tear, driven by plunging interest rate expectations. Declining bond yields could lead to a drop in everything from mortgage rates to the interest rates borrowers pay on floating debt like credit cards and personal loans. Indeed, for the overall economy, this should boost activity and provide a floor underneath the current market. That’s seemingly what the market is pricing in right now.
Thus, investors are in doubt about what to do next. Bonds have certainly done well, and investors really couldn’t go wrong owning any asset class last year. However, I’m of the view that in this declining rate environment, certain dividend stocks could outperform.
Let’s look at three with some big upside potential right now.
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Fortis
Fortis (TSX:FTS) is a Canadian multinational gas and electricity utility company. For the first quarter of 2024, the company declared a dividend payment of $0.59 per share. This dividend will be disbursed on March 1, and available to shareholders of record on February 15. Overall, Fortis’s forward dividend yield of 4.3% is significantly higher than the sector average, which currently sits a little under 3%. Thus, on a yield basis alone, this is a stock to consider.
That said, Fortis’s long-term dividend-growth trajectory is why I like this stock. A Dividend King, Fortis has raised its dividend each and every year for 50 years. That is soothing for investors, and institutional investors agree. This is a stock that has more than 50% of its share count held by institutional investors, largely for this reason.
Additionally, the company’s recent third-quarter (Q3) results were strong. The company brought in net earnings of US$394 million, a significant jump from last year’s US$326 million. The company also announced its US$25 billion 2024-2028 capital plan, indicating an average annual base rate growth of 6.3%. This should support Fortis’s cash flow and dividend growth trajectory over the long term.
Enbridge
Enbridge (TSX:ENB) is one of Canada’s largest energy infrastructure organizations. For Q1 2024, this company has declared a dividend of $0.92 per share. This distribution is payable on March 1 to shareholders on record as of February 14. The company’s 7.7% dividend yield is the highest on the list, making this stock a top pick for those seeking yield.
Now, Enbridge isn’t likely to be a big dividend-growth stock, given where its current yield sits. However, for those looking for stability, investing in pipeline stocks appears to be a decent move right now, given the geopolitical backdrop and need for energy security.
In November, the company announced plans to invest around US$149 million in its Fox Squirrel Solar project. Moreover, this is just an initial investment, and the company plans on making subsequent investments throughout 2024.
Restaurant Brands
Restaurant Brands (TSX:QSR) is a Canadian international quick-service restaurant holding company. For the previous quarter, Restaurant Brands declared a dividend payment of $0.76 per share, payable on January 4 to shareholders on the record date of December 20. The company’s yield is the lowest of these three stocks, coming in at 2.8% at the time of writing.
That said, Restaurant Brands is a company I remain very bullish on from a long-term perspective. As a defensive-growth stock, Restaurant Brands’s expansion into global markets makes this company worth considering. New store openings in key markets such as China should boost the stock over the long term and provide the cash flow growth and stability to fund future dividend increases.
From a total-return perspective, Restaurant Brands is my top pick on this list.
Bottom line
All three of these dividend stocks have high long-term growth potential, which can help them generate sustainable dividends in the years to come. Thus, bond investors can consider diversifying their portfolio with these stocks, as capital rotates back into equities from yield-seeking investors.
