Stocks with high capital-intensive businesses have been under pressure over the last few years amid a high interest rate environment. With inflation showing signs of easing, we can expect central banks to slash interest rates before the end of this year, thus benefiting capital-intensive businesses. Meanwhile, the following two high-yielding dividend stocks trade at cheaper valuations, making them attractive buys.
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Enbridge
Enbridge (TSX:ENB) is a diversified energy company that transports oil and natural gas across North America. Besides, it has a solid presence in the natural gas utility and renewable energy space. Given its capital-intensive business, rising interest rates have weighed on its stock price, with the company losing around 19% of its stock value compared to its 2022 highs. The correction has dragged its valuation down, with its NTM (next 12 months) price-to-earnings multiple at 16.2.
Enbridge operates a highly contracted business, with around 98% of its adjusted EBITDA (earnings before interest tax, depreciation, and amortization) generated from cost-of-service contracts. Besides, around 80% of its EBITDA is inflation-indexed, thus protecting against rising prices. So, the diversified energy company generates stable cash flows, allowing it to raise dividends consistently. Over the last 29 years, the company has raised its dividends at a CAGR (compound annual growth rate) of 10%. Besides, its forward dividend yield stands at a juicy 7.6%.
Further, Enbridge is continuing with its $25 billion secured capital program, with an annual investment of $6 to $7 billion. These investments could expand its midstream, utility, and renewable asset base, delivering 3% annualized growth. Besides, its optimization and cost-cutting initiatives could contribute 1 to 2% of additional growth. Along with organic growth, the company also focuses on strategic acquisitions. It has acquired two natural gas utility assets from Dominion Energy and is working on closing the third deal. These acquisitions could make the company the largest natural gas utility company in North America. The increasing revenue from low-risk utility businesses could further stabilize Enbridge’s financials, thus making its future dividend payouts safer.
BCE
The telecom sector has been under pressure over the last two years amid a high interest rate environment and unfavourable regulatory policies. BCE (TSX:BCE), one of the three top players in the sector, has lost over 40% of its stock value compared to its 2022 highs. The steep correction has dragged its valuation down, with its NTM price-to-sales and NTM price-to-earnings multiples at 1.6 and 14.4, respectively.
Meanwhile, telecom companies enjoy healthy cash flows due to recurring revenue streams. Supported by these steady cash flows, BCE has raised its dividends for 16 consecutive years, while its forward dividend yield has increased to an impressive 9.3%.
Amid digitization and growth in remote working and learning, telecommunication services have become essential. BCE continues to expand its 5G infrastructure and offer attractive bundled offerings, expanding its customer base. Its mobile customer base grew 3.1% in the March-end quarter, while its ARPU (average revenue per user) remained unchanged.
Further, the company has slashed its capital expenditure in money-losing assets and undertaken workforce restructuring initiatives to improve its profitability. So, despite the near-term weakness, I believe BCE would be an excellent buy at these levels.
