For Canadian passive income investors looking to land a higher dividend yield before the next wave of inflation hits (the latest blockage in the Strait of Hormuz could cause oil to make another big bounce), there are still plenty of great options right here on the TSX Index.
Of course, the Canadian stock market has been on quite a run, and while it’s never fun to buy a stock that has been going endlessly higher with valuation metrics that are on the higher side of the five-year historical range, I still think momentum itself is nothing to fear, provided the fundamentals have also been improving.
With the Canadian bank yields coming back to Earth after a historic multi-year run, Canadian income investors now have a tough decision to make: stick with the banks and perhaps get used to the sub-3% yields or look elsewhere, perhaps taking on a bit more risk for a lot more dividend yield.
If a yield in the 3% range isn’t enough, I do think that the REITs (Real Estate Investment Trusts) and pipeline stocks could make a lot of sense for investors seeking not only heftier payouts but a solid growth profile, as well as a payout that can be sustained for the long haul.
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The REITs have seriously impressive payouts at reasonable prices
Indeed, some REITs are designed to have heftier yields, and while total returns (that’s capital appreciation combined with dividends or distributions paid out) is the real metric to look for, I’m certainly not against getting more of that return from the dividend or distribution side.
At this juncture, SmartCentres REIT (TSX: SRU.UN) stands out as one of the better ways to lock in a yield north of 6% without having to step in harm’s way with a dividend trap that only has a swollen yield because of a recent plunge and decay of the fundamentals. Indeed, when it comes to a high-yield REIT, there’s quite a bit of interest rate sensitivity.
And at a time like this, when the Bank of Canada could go either way after the pause, the REITs seem to be in a very interesting spot. Perhaps rates staying as they are could allow more appreciation, all while SmartCentres shifts the mix towards residential real estate.
Enbridge stands out as a top dividend growth play
For investors who want more capital gains potential and eligibility for that sweet Canadian dividend tax credit, Enbridge (TSX: ENB) looks like a great choice, even if the yield is now a full percentage point lower than the 6% it has typically hovered around. Still, a 5% yield isn’t bad, especially when you consider energy transport might be one of the major bottlenecks as the great AI-led infrastructure bottleneck continues to play out.
Any way you look at it, Enbridge has all the makings of a premium stock deserving of a premium valuation. Whether you’re looking for crude or natural gas transportation, Enbridge stands tall as the firm continues to position its growth pipeline to bolster cash flows steadily over time. As tailwinds grow stronger, count me as unsurprised if Enbridge hikes its dividend at a faster pace every year through 2030.
It’s tough to pick a “best” dividend play, but Enbridge certainly stands out if you want dividend growth and a yield that’s still generous despite gaining close to 80% from its lows of October 2023.
