Last week, the Bureau of Labor Statistics stated that the United States Consumer Price Index rose 3.4% in December. It increased from 3.1% in November and was higher than economists’ prediction of 3.2%. With inflation higher than economists’ predictions, the Federal Reserve will not be in a hurry to cut its benchmark interest rates. So, the equity markets could remain volatile in the near term. Amid the uncertain outlook, investors could buy quality dividend stocks to strengthen their portfolios and earn dividends at a healthier rate.
Despite the solid recovery in the broader equity markets over the last three months, the following two dividend stocks trade at a substantial discount compared to their all-time highs and offer higher dividend yields. So, let’s assess whether these two stocks would be an excellent buy at these levels.
BCE
The telecom sector is a capital-intensive business. So, with the central banks raising interest rates worldwide to fight inflation, the industry has been under pressure over the last 18 months. Amid the weakness, BCE (TSX:BCE) has lost over 25% of its stock value compared to its all-time high. The pullback offers excellent buying opportunities for long-term investors, as the demand for telecom services is rising amid digitization. Besides, telecom companies also enjoy stable cash flows, given their recurring revenue streams.
Further, the high initial investment and regulatory approvals have created an entry barrier for new players, thus allowing existing players to secure their market share. BCE acquired 939 spectrum licenses in November, which could enable it to expand its 5G+ services to cover 99% of the Canadian population. The company’s 5G and 5G+ infrastructure currently covers 85% and 51% of the Canadian population, respectively. The company’s management expects a full deployment within the next few years.
These initiatives could expand BCE’s customer base and drive its financials, thus allowing it to continue paying dividends at a healthier rate. Meanwhile, the Canadian telecom company has raised its dividend by over 5% yearly for the previous 15 years. Its forward dividend yield stands at 6.98%. Amid the steep correction, the company’s NTM (next 12 months) price-to-earnings multiple has declined to 17.5, making it an excellent buy in this volatile environment.
TC Energy
Another cheap dividend stock I am bullish on would be TC Energy (TSX:TRP), a midstream energy company that trades over a 30% discount compared to its all-time high. Rising interest rates and the impact of an oil spillage at its Keystone pipeline facility weighed on its financials, thus dragging its stock price down.
However, the correction offers excellent buying opportunities, as it earns around 95% of its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) from regulated assets or take-or-pay contracts. So, its cash flows are less susceptible to market volatility. Supported by its stable cash flows, it has raised its dividends uninterruptedly since 2000. Currently, it offers a quarterly dividend of $0.93/share, with its forward yield standing at 6.97%.
Further, the midstream energy company plans to invest around $8–$8.5 billion this year and $6–$7 billion beyond 2024 to strengthen its asset base. Boosted by these investments, the company’s management projects its adjusted EBITDA to grow at a CAGR (compound annual growth rate) of 7% through 2026. Also, it is confident of maintaining 3-5% dividend growth in the coming years, thus making it an excellent buy for income-seeking investors.
