Yesterday, the Bank of Canada cut its benchmark interest rates by 0.25% to 2.75% amid uncertainty created by the United States’ changing tariff threats. The central bank expects a severe economic impact from the trade war with the United States. Although the S&P/TSX Composite Index rose 0.72% yesterday against the backdrop of rate cuts and lower-than-expect inflation in the United States, the volatility in the equity market could continue.
Meanwhile, with interest rates falling to September 2022 lows, income-seeking investors could invest in the following three high-quality dividend stocks to earn stable and predictable passive income in this uncertain outlook.
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Enbridge
Given its resilient cash flows, impressive dividend payment and growth record, and high yield, I have chosen Enbridge (TSX: ENB) as my first pick. The Calgary-based energy infrastructure company generates healthy cash from its regulated and contracted midstream energy business, irrespective of the broader market conditions. These stable cash flows have allowed it to pay dividends for 69 years and raise its dividends for 30 previous years. Its quarterly dividend of $0.9425/share translates into a forward dividend yield of 6.16% as of the March 12th closing price.
Moreover, Enbridge is expanding its assets and hopes to put $23 billion of assets into service by 2027. Also, the company’s three natural gas utility assets, which it recently acquired for $19 billion, could further strengthen its cash flows. Amid these growth initiatives, the company’s management expects its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) to grow at a 7-9% CAGR (compound annual growth rate) through 2026 and hopes to raise its dividends by up to 3% annually.
Further, Enbridge’s management has also stated that tariffs would not immediately impact the volume of Canadian oil imported to the United States, given the integrated nature of the energy industry in both countries. So, the management expects tariffs not to negatively impact its financials. Considering all these factors, I believe Enbridge would be an excellent buy right now.
Bank of Nova Scotia
With interest rates continuing to fall, I expect credit demand to rise and improve credit metrics for borrowers, thus benefiting Canadian banks, including Bank of Nova Scotia (TSX: BNS), which is my second pick. The Toronto-based company has an impressive track record of paying dividends since 1833. It has also raised its dividends at an annualized rate of 5.2% for the last 10 years and currently offers an attractive yield of 6.2%.
Moreover, the financial services company prioritizes expanding its footprint in North America and has made strategic investments by acquiring a 14.9% stake in KeyCorp. It also focuses on improving its efficiency in international markets and has sold its banking operations in Colombia, Costa Rica, and Panama to Davivienda in exchange for a 20% stake in Davivienda. The transaction could lower Scotiabank’s common equity tier-one (CET1) ratio amid a reduction in risk-weighted assets. All these initiatives could boost its financials and support its future dividend payouts.
Telus
Although the telecom sector has been under pressure over the last few years, I have chosen Telus (TSX: T), one of Canada’s top three telecom players, as my final pick. The steep correction has dragged its valuation down to attractive levels, with its next-12-month price-to-sales multiple at 1.6. Also, its forward dividend yield has increased to a juicy 7.41%.
Meanwhile, Telus continues to expand its customer base by adding 328,000 customers in the fourth quarter. For 2024, it has added 1.22 million subscribers, marking a third consecutive year of over one million net additions. Its expanding 5G network and broadband services have supported its customer base expansion and financial growth. By the end of the fourth quarter, the company’s 5G network covered 32.3 million Canadians, or 87% of the country’s population. It had around 3.7 million subscribers of connected devices.
With the digitization of business processes and the rise in remote working and learning, the demand for telecommunication services could continue to rise, thus benefiting Telus. Meanwhile, the company continues to strengthen its 5G and broadband infrastructure with a $2.5 billion capital investment plan for this year. These investments could allow it to benefit from the demand growth. Telus’s health and agriculture & consumer goods services are also witnessing healthy growth and could support its financial growth in the coming quarters.
