The recent announcement by the Federal Reserve of the United States that interest rate cuts are on the horizon has improved investors’ sentiments, driving the Canadian equity markets higher. The S&P/TSX Composite Index is up 11.4% this year. Amid improving investors’ sentiments, here are three under $50 stocks that new investors can buy confidently.
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Hydro One
Hydro One (TSX: H) is a utility company that transmits and distributes electricity across North America. The company generates stable and predictable cash flows with 99% regulated assets and no exposure to commodity price fluctuations. Besides, the company has adopted several initiatives, such as outsourcing several activities and strategic sourcing initiatives, which delivered productivity savings of $113.9 million last year.
Further, Hydro One has planned to invest around $11.8 billion from 2022 to 2027, which could grow its rate base at an annualized rate of 6%. Amid these growth initiatives, management projects its EPS (earnings per share) to grow at a 5-7% CAGR (compound annual growth rate) through 2027. The company’s balance sheet looks solid, with available liquidity of $3.9 billion. Moreover, the company has raised its dividends at an annualized rate of 5% from 2017 to 2022. Besides, management is confident of raising its dividends at a CAGR of 6% through 2027.
Currently, the company pays a quarterly dividend of $0.3/share, with its forward yield at 2.8%. Considering its regulated business and healthy growth prospects, I believe Hydro One would be an ideal buy for beginners.
Telus
Second on my list would be Telus (TSX: T), one of the three top telecom players in Canada. Amid high interest rates and unfavourable policy changes, the sector has been under pressure over the last two years. Meanwhile, the Bank of Canada has cut interest rates twice this year and could continue its monetary tightening initiatives. So, falling interest rates could reduce its interest expenses, thus boosting its financials.
Besides, the demand for telecommunication services could continue to rise in this digitally connected world, thus creating long-term growth potential for Telus. The company continues to expand its 5G and broadband infrastructure, which could increase its customer base and boost its financials. Given its recurring revenue stream, the telco enjoys healthy cash flows, thus allowing it to raise its dividends. Since May 2011, T has raised its dividends 26 times, while its forward yield is 7.1%. Further, management expects to increase its dividends by 7-10% annually through 2025. Considering all these factors, I believe Telus would be an ideal buy for beginners.
Canadian Utilities
Third on my list would be Canadian Utilities (TSX: CU), which has raised its dividends for 52 consecutive years. It is the longest track record of dividend growth by a public company. Given its low-risk electricity and natural gas transmission and distribution businesses, the company’s financials are less susceptible to market volatility, thus generating stable and predictable cash flows.
Further, the company has planned to invest around $4.3-$4.7 billion from 2024 to 2026, expanding its asset base. Besides, it is increasing its presence in renewable energy, with a solid developmental pipeline of 1.3 gigawatts of projects. Along with these growth initiatives, tariff hikes and improving operating efficiencies could boost its financials, thus allowing it to continue its dividend growth. Moreover, it offers a forward dividend yield of 5.4% and trades at an attractive NTM (next 12 months) price-to-earnings multiple of 14.1, making it an ideal buy for new investors.
