These 3 Canadian Stocks Offer High Dividend Yields
Diversify your portfolio with these three stocks from the North.
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Investing in Canadian stocks is an easy way to diversify your portfolio.
Investors may not realize that Canadian stocks tend to trade for lower valuations than their U.S. counterparts, and many also have a higher dividend yield as well. All this means that certain Canadian stocks could represent better buying opportunities for income investors.
The following three Canadian stocks are attractive for income investors.
A Bridge to the North: Enbridge Inc.
Enbridge ENB is an oil and gas company 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 third-quarter earnings results on Nov. 1 showing it generated revenues of CAD$14.9 billion ($10.7 billion in U.S. dollars) during the period, which was up by 48% compared to the previous year’s quarter. During the quarter, Enbridge managed to grow its adjusted earnings before interest, taxes, depreciation, and amortization by 9% year over year, to CAD$4.2 billion, up from CAD$3.87 billion during the previous year’s quarter.
EBITDA growing slower than the company’s revenue was due to changes in commodity prices that boosted both Enbridge’s revenues and expenses. During the third quarter, Enbridge was able to generate distributable cash flows of CAD$2.6 billion, which equates to $1.9 billion in U.S. dollars, or $0.89, on a per-share basis.
Enbridge 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 about $4.02 in U.S. dollars at the midpoint of the guidance range, which would be a new record for the company.
Enbridge produced relatively consistent distributable cash flow growth over the last decade, although not at a high rate. Enbridge put billions worth of projects into service over the last couple of years, and more growth projects are under construction, which includes new energy assets such as wind farms as well as hydrocarbon assets such as pipelines.
According to management, growth will persist going forward, as Enbridge targets long-term cash flow per share growth of 5%-7%.
ENB has increased its dividend for 28 consecutive years and currently yields 6%.
Check Out Toronto-Dominion Bank
Toronto-Dominion Bank TD traces its lineage back to 1855 when the Bank of Toronto was founded. It is now a major bank with CAD$1.8 trillion in assets. The bank produces about CAD$14 billion in annual net income each year.
TD reported fiscal Q4 and full-year 2024 earnings results on Dec. 5, revealing revenue growth of 18% year-over-year to CAD$15.5 billion. Provision for credit losses (“PCL”) rose 26% to CAD$1.1 billion. But net income still climbed 27% to CAD$3.6 billion. The adjusted metrics likely provide a better picture of TD’s normal earnings power.
Adjusted revenue climbed 12% to CAD$14.9 billion, and the adjusted net income fell 8% to CAD$3.2 billion, leading to adjusted diluted earnings per share (“EPS”) of CAD$1.72, down 5.5% year over year. Its PCL ratio as a percentage of average net loans and acceptances was 0.47%, up 8-basis points from a year ago. The adjusted return on equity (“ROE”) was 13.4%, up from 10.5% a year ago. The bank’s capital position remained solid with a common equity tier 1 ratio of 13.1%, down from 14.4% a year ago.
TD’s medium-term goal is to grow adjusted EPS by 7%-10% per year. But the foreign exchange fluctuation between the Canadian dollar and U.S. dollar will impact the effective growth rate. That said, TD’s EPS performance has been stable in the last decade despite foreign exchange volatility.
From 2014 to 2023, the bank increased its EPS by 5.1% per year. We estimate TD can grow its EPS and DPS by 5.0% per year through 2029.
TD normally has a dividend payout ratio of under 50%. The bank’s competitive advantage is its focus on retail banking in Canada and in the U.S. Still, as a leading North American bank, TD stands as one of the strongest banks that can navigate through any economic hardship.
TD stock currently yields 5.1%.
Power Your Portfolio With Canadian Utilities
Canadian Utilities CDUAF is a utility company with approximately 5,000 employees. ATCO owns 53% of Canadian Utilities. Based in Alberta, Canadian Utilities is a diversified global energy infrastructure corporation delivering solutions in Electricity, Pipelines & Liquid, and Retail Energy. The company prides itself on having Canada’s longest consecutive years of dividend increases, with a 52-year streak.
Canadian Utilities posted its Q3 results in mid-November, showing revenues amounted to $599.0 million (in U.S. dollars, which is the currency for this section), relatively flat year-over-year (in constant currency), while adjusted EPS came in at $0.28, about 19% higher year-over-year. Flat revenues were mainly due to the decreased revenue contribution from ATCOenergy with its sale to ATCO Ltd. in the quarter, being offset by growth in rate base and an increase in return on equity (ROE) in ATCO Energy Systems.
Higher adjusted earnings in Q3 were primarily driven by growth in rate base and an increase in ROE within ATCO Energy Systems' businesses, higher demand and stronger seasonal spreads in natural gas storage services at ATCO EnPower, and increased interest income.
These gains were partially offset by the impact of inflation indexing in ATCO Australia and tax adjustments recorded by Electricity Distribution in the final two quarters of 2023. We now expect earnings per share of $1.69 for fiscal 2024.
Canadian Utilities can slowly, but progressively, grow its earnings. The company consistently invests in new projects and benefits from the base rate increases, which grow at around 3% to 4% annually. In 2021, management had filed an application with the Alberta Utilities Commission to postpone Canadian Utilities’ electricity and natural gas distribution rate increases.
The company received almost all deferred revenues by the end of 2022. Combining the company’s growth projects and the possibility of modest margin improvements, we retain our projected growth rate at 4%.
The company’s competitive advantage lies in the moat regulated utilizes are surrounded by. With no easy entry in the sector, regulated utilities enjoy an oligopolistic market with little competition threat. The company’s resiliency has been proven for decade after decade.
Despite multiple recessions and uncertain environments over the half a century, the company has withstood every one of them while raising its dividend. CDUAF currently yields over 5%.
At the time of publication, Ciura had no position in any security mentioned.