Canada’s annual inflation rate declined to 2.9% in January from 3.4% in December, lower than analysts’ expectations of 3.3%. Although inflation shows signs of easing, it is still higher than the Federal Bank’s guidance of 2%. With inflation eating into your pockets, you can lower the impact by investing in high-yielding dividend stocks that generate a stable passive income. Meanwhile, here are my three top picks.
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Enbridge
Speaking of safe dividend stocks, Enbridge (TSX: ENB) is the first stock that comes to my mind, given its excellent track record. The midstream energy infrastructure company transports oil and natural gas across North America through its pipeline network. It is also growing its renewable energy and natural gas utility assets. With around 97% of its cash flows generated from cost-of-service and take-or-pay contracts, the company generates stable and predictable cash flows. Around 80% of its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) is inflation-indexed, thus shielding its financials from rising commodity prices.
The Calgary-based energy company has paid dividends uninterruptedly for 69 years and raised them for 29 previous years. It currently pays a quarterly dividend of $0.915/share, with a forward yield of 7.62%.
Further, Enbridge recently acquired East Ohio Gas Company and is currently working on acquiring two other natural gas utility assets. These acquisitions could increase its cash flows from high-quality, low-risk utility assets, thus further stabilizing its cash flows. The company’s management expects to put $4 billion of assets into service annually in 2024 and 2025. Given Enbridge’s healthy growth prospects, its future dividend payouts look safer, making it attractive.
BCE
Another high-yielding dividend stock that will help you beat inflation would be BCE (TSX: BCE), which offers a juicy dividend yield of 8.56%. Given its stable cash flows due to recurring revenue streams, the Montreal-based telecommunication company has raised its dividend for 16 consecutive years. The demand for telecommunication services is rising amid digitization. The company has also strengthened its 5G and broadband infrastructure to capture the growing demand.
However, BCE has been under pressure over the last few months. The CTRC (Canadian Radio-television and Telecommunications Commission) has mandated large telecom companies to share their fibre-to-the-home (FTTH) networks with smaller players to increase competition and lower customer prices. The announcement would hurt telcos, such as BCE, which have invested aggressively in expanding their broadband network. The company has lost close to 30% of its stock value compared to its last year’s highs and is trading at an attractive NTM (next 12-month) price-to-earnings multiple of 15.2. Despite the near-term weakness, I am bullish on BCE, given its long-term growth potential and attractive dividend yield.
Pizza Pizza Royalty
My final pick is Pizza Pizza Royalty (TSX: PZA). It has adopted a highly franchised business model and operates 774 restaurants through its franchisees. It collects royalty from these franchisees based on their sales. So, rising prices and wage inflation will not impact its financials. Instead, increased menu prices amid rising expenses could boost its royalty pool income.
Further, the company is expanding its footprint by adding new restaurants. From January 1, it added 45 new restaurants to its royalty pool and removed 14 restaurants that had ended their operations. New product launches, marketing initiatives, and renovations of old restaurants could boost sales, driving royalty income. So, the Toronto-based company is well-positioned to continue rewarding its shareholders through high dividend yields. Currently, it offers a monthly dividend of $0.0775/share, with its forward yield at 6.77%.
