After a solid fourth quarter, the Canadian equity markets have maintained their uptrend, with the S&P/TSX Composite Index rising 0.6% year to date. Solid fourth-quarter GDP (gross domestic product) numbers in the United States and the expectation of interest rate cuts appear to have driven the equity markets higher.
However, economists are predicting a slowdown in global growth this year due to the impact of monetary tightening initiatives. Besides, the ongoing Israel-Palestine war and Red Sea crisis could impact the equity markets. So, it is prudent to add quality dividend stocks, which can strengthen your portfolios and deliver stable passive income.
Here are my three top picks that pay dividends at a healthier rate.
Enbridge
Enbridge (TSX:ENB) has been paying dividends uninterruptedly for 69 years and has raised its dividends at a CAGR (compound annual growth rate) of 10% for 29 years. The company operates a regulated midstream business, generating around 98% of its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) from regulated assets and long-term contracts. So, its cash flows are stable, irrespective of market conditions, thus allowing it to consistently raise its dividends.
Besides, the Calgary-based energy company is working on acquiring three gas utility assets in the United States. Also, the contributions from $3 billion worth of assets put into service in 2023 and $4 billion worth of assets management expects to put into service this year could boost its financials. Amid these growth initiatives, the company expects its adjusted EBITDA and DCF (discounted cash flows) per share to grow around 3% this year. Its financial position also looks healthy, with the company hopeful of closing this year with a debt-to-EBITDA ratio between 4.5 and 5. So, I believe Enbridge’s future payouts will be safer.
Considering all these factors and a forward dividend yield of 7.7%, I believe Enbridge would be an excellent buy for income-seeking investors.
BCE
Second on my list would be BCE (TSX:BCE), which offers a forward yield of 7.27% and trades at 1.9 times its projected sales for the next four quarters. Telecommunication companies’ cash flows are stable due to the recurring revenue sources. Besides, high initial investments and regulatory approvals deter new players from entering the market, thus allowing existing players to maintain their market share. Supported by its solid cash flows, the company has raised its dividend uninterruptedly since 2008.
Further, the Montreal-based telecom company acquired 939 spectrums in November, which allows it to cover 99% of Canadians with its 5G+ services. The company currently covers 85% and 51% of the population with 5G and 5G+ services, respectively, and is hopeful of full deployment within the next few years. So, the telco is well-positioned to capture the growing demand for telecommunication services amid digitization.
Bank of Nova Scotia
Another stock that I am bullish on is the Bank of Nova Scotia (TSX:BNS), which also offers an attractive forward dividend yield at 6.72%. The company has been under pressure over the last few years, losing over 25% of its stock value compared to its 2022 highs. The increase in provision for credit losses amid rising interest rates has weighed on its financials and stock price. Amid the sell-off, it trades at a cheaper NTM (next 12 months) price-to-earnings multiple of 9.6.
Meanwhile, the company has strengthened its balance sheet and improved its liquidity position to sail through the uncertain macro environment. Its common equity tier 1 (CET1) ratio increased from 11.5% in 2022 to 13%, while its liquidity coverage ratio improved from 119% to 136%. Further, it has undertaken restructuring initiatives and expects to cut its workforce by 3%. Along with these initiatives, the expectation of central banks slashing their benchmark interest rates would make the Bank of Nova Scotia an attractive buy.
