3 Blue-Chip Canadian Stocks With High Dividend Yields

Investors in the U.S. often overlook Canadian stocks. However, many Canadian stocks have higher dividend yields than their U.S. counterparts. 

Canadian companies declare their dividends in Canadian dollars, which can cause some volatility in the payout when translated for U.S. investors. Still, many Canadian blue-chip stocks, in addition to offering significantly higher yields, have lower valuations than comparable U.S. companies.

Here are three Canadian names yielding more than 6% that income investors should consider.

Canadian High Yielder #1

The Bank of Nova Scotia BNS is a Canadian bank based in Halifax. The bank provides typical banking products and services throughout Canada, the U.S., Mexico, the Caribbean, and parts of South America. It offers a suite of banking products, including traditional checking and savings accounts, investment management, mortgages and other loans, insurance, business banking services, private banking and more.

BNS reported first-quarter fiscal 2024 results in late February. For the quarter, revenue rose 5.9%, while non-interest expenses was up 6.2%. The bank saw net income growth across its business segments. 

Adjusted earnings per share declined 8%, being weighed down by higher non-interest expenses and higher provision for credit losses (PCL) that increased more than 50% year over year. The bank’s capital position improved — the Common Equity Tier 1 ratio was 12.9% versus 11.5% a year ago.

We expect annual EPS growth of approximately 5% for the bank over the next five years. Its competitive advantage is in its international growth strategy, as it is willing to acquire growth outside of its primary markets. When the global economic environment improves, its international strategy should be an advantage for growth. The international focus is on Latin America geographies such as Mexico, Peru, and Chile.

BNS normally has a payout ratio of around 50%, which aligns with other big Canadian banks. Its payout ratio was higher than normal in fiscal 2020 due to a higher provision for credit losses from pandemic impacts. BNS’s payout ratio is again higher than normal, but we expect it to head towards the 50% range.

BNS stock currently yields 6.3%.

Canadian High Yielder #2

BCE Inc. BCE is a telecommunications and media company that provides communications services in the following business units: Bell Communication and Technology Services (CTS), which includes Wireless and Wireline, and Bell Media. BCE addresses residential customers as well as small- and medium-sized businesses and large enterprise customers. Founded in 1970, BCE is headquartered in Verdun, Canada.

BCE reported Q4 2023 results on February 8. For the quarter, its operating revenues rose 0.5%, while its adjusted net earnings advanced 5.7%, and its adjusted EBITDA (a cash flow proxy) was up 5.3%. Adjusted EPS climbed 7.0% versus the same quarter a year ago.

Going forward, EPS growth will be boosted by a significant round of cost-cutting. BCE is cutting its workforce by 9% in its biggest restructuring effort in almost 30 years. The company also increased its quarterly dividend by 3.1%.

BCE provided its outlook for 2024 as follows: revenue growth of 0-4%, adjusted EBITDA growth of 1.5%-4.5%, and an adjusted EPS decline of 2%-7%.

BCE retains many competitive advantages, which will help its future growth. Its network is the fastest-ranked as well as the largest wireless network in Canada, which includes LTE coverage of more than 90% of Canadians and 5G coverage of ~85% of the Canadian population.

BCE’s free cash flow is expected to rebound strongly in 2024 as it completes its 5G investments. Since 2020, BCE has invested almost C$21 billion, including capital expenditures of ~ C$4.6 billion in 2023. As these investments are largely completed, the company’s free cash flow should improve.

This should bring the FCF payout ratio down to a more comfortable level again. Its net debt to adjusted EBITDA ratio was 3.5x at the end of Q4 2023. 

As the Canadian operator with the best network, customers should be drawn to BCE, and the company’s peers would have to invest billions to get the same assets. This is why the telecom industry is not threatened by new entrants, as market entry barriers are high.

BCE stock currently yields 8.9%.

Canadian High Yielder #3

Enbridge Inc. ENB is an oil & gas company based in Canada that operates the following segments: Liquids Pipelines, Gas Distributions, Energy Services, Gas Transmission & Midstream, and Green Power & Transmission. Enbridge bought Spectra Energy for $28 billion in 2016 and has become one of the largest midstream companies in North America.

Enbridge reported its fourth-quarter earnings results on February 9. The company generated lower revenues during the quarter, but since commodity prices are mostly a pass-through cost for the company, lower revenues do not necessarily translate into lower profits. During the quarter, the company managed to grow its adjusted EBITDA by 5% year over year. This was possible thanks to expenses dropping faster than revenues during the quarter.

The company is forecasting distributable cash flows in a range of CAD$5.40-CAD$5.80 per share for the current year. Using current exchange rates, this equates to USD$4.12 at the midpoint of the guidance range, which would be a new record for the company.

Future growth will be fueled largely by new projects. Enbridge put more than $10 billion worth of projects into service during the last two years, and more growth projects are under construction. According to management, growth will persist going forward, as Enbridge targets long-term cash flow per share growth of 5%-7%.

The company has guided for meaningful dividend growth throughout the next couple of years. Enbridge’s cash generation is not very cyclical, thus the dividend seems safe, even during a recession. 

One of the largest pipeline operators in North America, Enbridge's vast asset footprint serves as a tremendous competitive advantage, as it would take tens of billions of dollars of investments from new market entrants if they wanted to be able to replace Enbridge’s assets. Competitive risks, therefore, are low.

ENB has a 2024 dividend payout ratio of 66%, indicating a safe dividend payout. 

ENB stock currently yields 7.6%.

At the time of publication, Ciura had no positions in any stocks mentioned.