For Canadian investors looking to play things a bit more defensively as the TSX Index, S&P 500, and Nasdaq 100 break through to higher highs, there are plenty of intriguing higher-yielding options. Undoubtedly, the large-cap dividend payers in Canada have really had a chance to flex their muscles of late.
And as some international investors (including U.S. income investors) seek solid dividends (the S&P 500 is yielding close to the lowest in recent memory) as well as a good amount of capital appreciation and dividend growth potential, perhaps Canada’s dividend stocks could continue to shine for a while longer, perhaps for the rest of the year.
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Canada’s market is rich with impressive dividend plays
Of course, when it comes to the dividend stars, the higher yield is often at the expense of growth. In an era where excess cash would have been better spent on various AI initiatives (higher capital expenditures), perhaps dividend growth could take a bit of a backseat for most firms.
In any case, I believe that Canada is a source of some of the best dividend stars out there, and I view them as a great way to balance the more defensive, dividend-focused side of a barbell portfolio, one which may already be too overweighted in the AI and tech plays.
In any case, consider shares of Hydro One (TSX: H), one of the dividend stocks that really is in a class of its own. So, if dividends are what you seek and you don’t want to completely derail your total returns, as you would with a distressed, artificially high-yielding name, the following name really does stand out.
Hydro One: It’s not cheap, but it’s still a winner poised to keep winning
Hydro One is one of the most defensive dividend payers out there, with some very high regulatory hurdles protecting its cash flows in the province of Ontario.
Shares have nearly doubled, rising by about 92% in the past five years, making the transmission line one of the more profitable ways to play defense while ensuring a good night’s rest. The 25.9 times trailing price-to-earnings (P/E) multiple might be a bit on the steeper side, but I think that’s a fair price to pay in a climate where appreciation and yield are harder to come by.
With a 2.4% yield, the name is in a bit of a strange spot. On the one hand, the yield is quite generous for a name with that much long-term momentum behind it. But, at the same time, the yield is on the lower end of the historic range, and the sub-3% yield might not be enough to satiate some of the income-hungry investors out there who’d probably be better off in a 4%-yielder, even if it means forgoing some upside potential.
The bottom line
Quality dividend growers go for a fatter premium these days, and in the case of H shares, I view the name as worth nibbling over time, especially on those minor bumps on the road higher. The 0.41 beta might be the reason to buy the stock, rather than the momentum and the fast-growing dividend.
