Investing in high-yielding dividend stocks is an excellent strategy, as these companies deliver a stable passive income. Due to their regular payouts, these companies are less susceptible to market volatility, thus providing portfolio stability. 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 its stable cash flows, consistent dividend growth, and high yield. The company earns around 98% of its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) from regulated cost-of-services and long-term take-or-pay contracts, thus shielding its financials from market volatility. Supported by these healthy cash flows, the company has raised its dividend for 29 years at a 10% CAGR (compound annual growth rate). Also, it offers an attractive forward dividend yield of 6.32%.
Meanwhile, amid recent acquisitions, Enbridge’s debt-to-EBITDA multiple has increased to 4.9 compared to 4.7 in the previous quarter. However, the company’s management expects the contributions from those acquisitions to bring the multiple down next year. Further, the company is continuing its $24 billion secured capital growth program, expanding its midstream and renewable assets. Amid these growth initiatives, the company’s management has reaffirmed its three-year guidance, with its top line projected to grow at 7-9% annually while its adjusted EPS (earnings per share) could increase at 4-6%. Given these healthy growth prospects, I believe Enbridge could continue its dividend growth, thus making it an excellent buy for income-seeking investors.
Bank of Nova Scotia
Bank of Nova Scotia (TSX: BNS), which has been paying dividends since 1833, is a reliable stock to have in your portfolio. The company has also increased its dividends at a 5.75% CAGR for the last 10 years and offers a forward yield of 5.71%. Meanwhile, the financial services company has witnessed healthy buying over the previous few months amid interest rate cuts by the Bank of Canada. BNS’s stock price has increased by 22.3% compared to August lows. Despite the increase, its valuation still looks attractive, with an NTM (next 12 months) price-to-earnings multiple of 10.9.
Falling interest rates could boost economic activities, thus driving credit demand while lowering defaults. Given its diverse products and services, BNS could benefit from credit growth. Also, it has witnessed deposit growth and expansion of net interest margin during the July ending quarter. The company has strengthened its balance sheet with its common equity tier-one (CET1) ratio improving from 12.7% to 13.3%. BNS has made a strategic investment in KeyCorp, which could boost its near-term profitability and expand its business in the United States. So, its growth prospects look healthy.
Fortis
Fortis (TSX: FTS) operates a low-risk, regulated utility business, meeting the electricity and natural gas needs of 3.5 million customers. With 99% regulated assets and 93% involved in low-risk transmission and distribution business, the company generates stable and predictable cash flows irrespective of the market conditions. Supported by these healthy cash flows, the company has raised its dividends uninterruptedly for 51 previous years, while its forward yield currently stands at 4.05%.
Besides, Fortis has raised its capital investment projections for this year from $4.8 billion to $5.2 billion, with the company already investing $3.6 billion in the first three quarters. Moreover, the company expects to grow its rate base at an annualized rate of 6.5% to $53 billion by the end of 2029 and has committed to invest $26 billion over the next five years. These growth initiatives could boost its financials and cash flows in the coming years. So, the company’s management is confident of raising its dividends by 4-6% yearly through 2029. Considering its consistent dividend growth and healthy growth prospects, I believe Fortis would be an ideal buy for income-seeking investors.
