The United States Federal Reserve has indicated that it will cut its benchmark interest twice next year, against earlier indications of four rate cuts. The slowdown in monetary easing initiatives and uncertainty over the impact of Donald Trump’s government’s tariff imposition have made investors nervous, leading to a pullback in the equity markets. The S&P/TSX Composite Index has fallen 3.1% this month.
Given the uncertain outlook, investors can strengthen their portfolios by adding quality dividend stocks. These stocks are less susceptible to market volatility due to their regular payouts and stable cash flows. Moreover, investors can reinvest the regular payouts to earn superior returns. Against this backdrop, here are my two top picks.
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Enbridge
Enbridge (TSX:ENB) is an energy infrastructure company that transports oil and natural gas across North America. Besides, it is also one of North America’s largest natural gas utility companies and an early investor in the renewable energy space. Earlier this month, the company raised its quarterly dividend by 3% to $0.9425/share. It was the 30th consecutive year of dividend growth. Its regulated assets and long-term contracts generate stable cash flows, allowing it to raise its dividend consistently. Besides, ENB stock has been paying dividends uninterruptedly since 1955.
Moreover, Enbridge recently acquired three natural gas utility assets in the United States, making it North America’s largest natural gas utility company. These acquisitions have further strengthened its cash flows while lowering business risks. Besides, it continues to expand its asset base with its $27 billion secured capital program. Amid these growth initiatives, the company’s management expects its DCF (discounted cash flows)/share to grow at an annualized rate of 3% through 2025 and 5% after that.
Amid the recent acquisitions, Enbridge exited the third quarter with a debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) multiple of 4.9 compared to 4.7 at the end of the second quarter. However, given the contributions from its recent acquisition, the company’s management expects the multiple to improve in the coming quarters. Besides, with liquidity of $17.1 billion at the end of the third quarter, the company is well-positioned to fund its growth initiatives.
Despite Enbridge’s healthy growth prospects and high yield of 6.3%, the company trades at an NTM (next 12 months) price-to-earnings multiple of 20.1, making it an excellent buy.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS), which has been paying dividends since 1833, would be my second pick. Given its diversified revenue sources and extensive geographical presence, the company can generate stable and predictable cash flows, allowing it to pay dividends consistently. BNS has also raised its dividends at an annualized rate of 5.8% for the previous 10 years and currently offers an attractive forward yield of 5.5%.
BNS adopted a new strategy at the beginning of this year, focusing on increasing capital allocation towards high-return markets in North America. Against this backdrop, the bank has acquired a 4.9% stake in KeyCorp and has received regulatory approval to acquire another 10%, which it expects to close this year. This acquisition could further strengthen its business in the United States.
Moreover, BNS’s operating and financial metrics are improving. Its operating leverage stood at 2.3% for this fiscal year, while its net interest margin increased by four basis points to 2.2%. Its common equity tier-one capital ratio rose 0.1% to 13.1%. Amid these sold operating performances, its revenue grew by 4.5% while diluted EPS (earnings per share) grew by 2.6%. Further, the company’s management is projecting 5–7% earnings growth for fiscal 2025 and double-digit growth in fiscal 2026 as the falling interest rates could boost economic activities and lower provisions for credit losses. Amid these factors, I believe BNS’s future payouts will be safer, making it an excellent buy.
