The Canadian equity markets have turned volatile over the last few days as investors grew cautious after substantial gains over the previous few months. Moreover, the United States economy grew slower than expected in the third quarter, with its GDP (gross domestic product) rising 2.8% against analysts’ expectations of 3.1%. Besides, increasing treasury yields and geopolitical tensions are causes of concern. Considering these factors, I expect the global equity markets to be volatile in the near term.
Meanwhile, quality dividend stocks with solid underlying businesses and consistent payouts are less susceptible to market volatility. So, these stocks will strengthen your portfolios while generating a stable passive income. Against this backdrop, here are my three top picks.
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Enbridge
Enbridge (TSX:ENB) would be an ideal dividend stock to buy due to contracted business, healthy cash flows, and consistent dividend growth. The midstream energy company earns around 98% of its cash flows from regulated cost-of-service and long-term take-or-pay contracts. Also, its financials are less susceptible to commodity price fluctuations. The company has paid dividends for 69 years, supported by its healthy cash flows. It has also raised its dividends for 29 consecutive years at an annualized rate of 10%, with its forward yield at 6.5%.
Further, Enbridge strengthened its cash flows and lowered its business risks by acquiring three natural gas utility assets in the United States. Besides, it is continuing with its $24 billion secured capital investment program, expanding its midstream, utility, and renewable assets. These growth initiatives could boost its financials and cash flows, thus permitting it to continue its dividend growth. Also, Enbridge’s valuation looks reasonable, with its NTM (next 12 months) price-to-earnings multiple at 19.8.
Canadian Natural Resources
Canadian Natural Resources (TSX:CNQ), which offers a forward dividend yield of 4.4%, would be my second pick. The oil and natural gas producer operates large, low-risk, high-value reserves. Also, given its diversified, balanced asset base and lower capital reinvestment requirements, the company would break even at a lower WTI (West Texas Intermediate) price than its peers. So, it enjoys healthy cash flows, thus allowing it to raise its dividends consistently. The company has raised its dividends for 25 consecutive years at a 21% CAGR (compound annual growth rate).
Meanwhile, CNQ plans to drill 298 conventional E&P (exploration and production) wells this year while allocating $5.4 billion for capital investments. These investments could boost its production, thus driving its financials. With its net debt falling below its target of $10 billion, the company’s management expects to return all of its free cash flows to investors this year, thus making its future dividend payouts safer.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS), which has been paying dividends uninterruptedly since 1833, would be my final pick. The company has also raised its dividends at a 6% CAGR for the last 10 years and currently offers an impressive dividend yield of 5.8%. Meanwhile, the financial services company has witnessed healthy buying over the previous three months, with its stock price rising by 16.7% compared to its July lows. Despite the surge, its valuation looks attractive, with the company currently trading at 10.7 times analysts’ projected earnings for the next four quarters.
The Bank of Canada has slashed interest rates four times since June. Falling interest rates could boost economic activities, thus driving credit demand. Besides, BNS is working on acquiring a 14.9% stake in KeyCrop. The company’s management expects the acquisition to boost its near-term profitability while expanding its United States business. Considering its healthy growth prospects and favourable macro environment, I believe BNS will continue to reward its shareholders with healthy dividends, thus making it an ideal buy.
