Dividend stocks have historically demonstrated their resilience during market downturns, thus outperforming the broader equity markets in the long run. These companies generate consistent passive income regardless of the market environment, providing stability to your portfolio. However, rising interest rates have impacted the financial position of several companies, hence making their dividend payouts uncertain. So, investors will have to be careful while choosing stocks.
Here are three top dividend stocks I am bullish on despite the challenging macro environment.
TC Energy
TC Energy (TSX: TRP) transports oil and natural gas across North America through its pipeline network. It also has invested in seven power-producing facilities, with a total production capacity of 4,300 megawatts. With regulated assets and long-term contracts contributing 95% of its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization), the company’s financials are largely stable irrespective of the market environment.
Supported by this stable performance, the midstream energy company has raised its dividend uninterruptedly for the last 24 years. With a quarterly dividend of $0.96/share, it currently offers a forward dividend yield of 7.20%. After putting around $5.3 billion of projects into service last year, TC Energy hopes to put around $7 billion and $9 billion of projects into service in 2024 and 2025, respectively.
Propelled by these growth initiatives, the company’s management expects its adjusted EBITDA to grow at an annualized rate of 6% through 2026, excluding the pipeline segment. Besides, the company has also strengthened its financial position by selling its stake in Columbia Gas and Columbia Gulf for $5.3 billion. Amid its growth prospects and solid financial position, the company is confident of raising its dividend by 3 to 5% annually in the near term. Considering all these factors, I am bullish on TC Energy.
BCE
Another dividend stock I am bullish on would be BCE (TSX: BCE), one of Canada’s three top telecom players. Given their recurring revenue stream, telecommunication companies enjoy stable cash flows. Further, the demand for telecommunication services is rising amid digitization. Besides, the entry barriers due to high initial investments and regulatory approvals have allowed the existing players to enjoy their market share.
Meanwhile, BCE reported excellent fourth-quarter performance earlier this month, with its revenue and adjusted EBITDA growing by 2.1% and 5.3%, respectively. It also generated $2.4 billion of cash from its operating activities. Backed by solid financials, the company raised its quarterly dividend by 3.1% to $0.9975/share, a 16th consecutive year of dividend growth. BCE stock’s forward yield currently stands at 7.9%.
Meanwhile, BCE continues to invest in expanding its 5G and broadband infrastructure and has planned to invest around $4.1 billion this year. These investments could expand its customer base, driving its financials. So, I believe BCE is well-positioned to maintain its dividend growth in the coming years.
Bank of Nova Scotia
The Bank of Nova Scotia (TSX: BNS), which has been paying dividends since 1833, would be my final pick. The bank has been under pressure over the last two years. The rising interest rates have increased the fear of delinquencies, thus raising the provisions for credit losses and hurting its financials. BNS stock has lost around 22.5% of its value compared to its 2022 highs. Amid the sell-off, the company’s NTM price-to-earnings multiple has declined to 10.1.
Meanwhile, BNS reported a solid first-quarter performance yesterday. For the quarter ended on January 31, the company generated net income of $2.2 billion, representing a 34.6% increase from the previous quarter that ended on October 31. The growth across its four segments boosted its financials.
Meanwhile, the company is shifting its focus towards low-risk, less volatile geographies in North America to drive growth. Besides, the company has strengthened its capital position, enhanced its liquidity, and taken appropriate initiatives to improve efficiency and productivity. So, I believe the company’s future dividend payouts will be safe. Currently, the company offers a forward dividend yield of 6.43%, making it an excellent buy for income-seeking investors.
