Although the equity markets are continuing their uptrend, the expectations of a global economic slowdown amid monetary tightening initiatives and ongoing geopolitical tensions are causes of concern. So, investors should look to strengthen their portfolios with quality dividend stocks. These companies are less susceptible to market volatility, given their solid underlying businesses and regular payouts. Here are my three top picks.
Enbridge
Enbridge (TSX:ENB) is one of the top dividend stocks to have in your portfolio, given its highly regulated midstream business, healthy growth prospects, impressive track record of dividend growth, and high dividend yields. With the Calgary-based energy company earning around 98% of its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) from cost-of-service contracts and regulated assets, its financials are stable and predictable. Besides, around 80% of its adjusted EBITDA is inflation-indexed, thus shielding its financials against rising prices.
Supported by its stable financials, Enbridge has raised its dividend for 29 consecutive years. ENB currently pays $0.915/share quarterly, with its forward yield at 7.79%. Meanwhile, the company has also strengthened its financial position with its debt-to-EBITDA ratio at 4.1, lower than the management’s guidance of 4.5 to 5. The pipeline and energy major ended 2023 with liquidity of $23 billion. So, it is well-positioned to invest in its growth initiatives.
After putting $2 billion worth of projects into service last year, the company hopes to put $4 billion of projects into service annually this year and next. Also, it is working on acquiring three natural gas utility assets in the United States, which could lower its business risks and improve asset quality. Besides, ENB trades at an attractive NTM (next 12 months) price-to-earnings multiple of 16.8, making it an attractive buy.
BCE
The telecommunication sector has been under pressure over the last 10 months amid rising interest rates and the announcement from the CTRC (Canadian Radio-television and Telecommunications Commission) mandating large telecom players to allow small internet service providers to utilize their fibre networks to provide their services. Amid the weakness, BCE (TSX:BCE) has lost around 22% of its stock value compared to its 52-week high.
Despite the near-term weakness, the company’s fundamentals remain strong. Its adjusted EBITDA grew by 5.3% in the fourth quarter, while adjusted EBITDA margins expanded by 1.9% to 39.7%. It generated $2.4 billion of cash from its operating activities, representing a 15.4% increase from the previous year’s quarter. Besides, the company’s management raised its quarterly dividend by 3.1% to $0.9975/share, with its forward yield currently at 7.86%.
Further, the demand for telecommunication services is growing amid digitization, thus creating long-term growth potential for BCE. Also, BCE’s valuation looks attractive, with its NTM price-to-sales multiple at 1.9. Considering all these factors, I am bullish on BCE.
Fortis
My final pick would be Fortis (TSX:FTS), which has raised its dividends for 50 consecutive years. Given its highly regulated and low-risk utility asset base, the company has delivered stable financials irrespective of market conditions. Supported by these stable financials, the electric and natural gas utility has raised its dividends consistently. It currently pays a quarterly dividend of $0.59/share, with its forward yield at 4.44%.
Meanwhile, the utility company that serves 3.5 million customers is expanding its rate base. It plans to invest around $25 billion between 2024 and 2028, growing its rate base at a CAGR (compound annual growth rate) of 6.3%. So, the company is confident of raising its dividend at an annualized rate of 4 to 6% through 2028.
The utility business is capital-intensive. So, rising interest rates have weighed on Fortis’s stock price, with FTS stock losing 15% of its stock value compared to its 52-week high. Amid the weakness, the company’s NTM price-to-earnings multiple has declined to 16.6. So, I believe investors should utilize the correction to accumulate the stock to earn superior returns in this uncertain outlook.
