If you want to build your retirement portfolio with high-dividend stocks, the environment is not in your favor.
After a relentless year-long rally in the stock markets, some of the best dividend stocks are offering low-single digit returns. The index pays a dividend yield of just over 2% after rising more than 14% this year.
Looking for high-quality dividend stocks that still offer reasonable returns to beat inflation, we scanned the dividend space north of the border and came up with the following three names from different sectors. Let's take a closer look:
1. Bank of Nova Scotia
Yield: 4.7%
Quarterly Payout: $0.745
Market Capitalization: $75.6 billion
A popular trade that has attracted many income investors in recent years is buying high-quality Canadian banking stocks and playing with the strength of the country's economy and its sound financial regulations.
Canada's top six banks generally pay between 40-50% of their income in dividends annually, making them a pretty attractive bet for retirees.
Bank of Nova Scotia (NYSE:) (TSX:), Canada's third largest bank, currently offers the highest yield of the top six banks, and could be a good addition on any long-term pension portfolio.
Weekly chart from the Bank of Nova Scotia.
As in the US, Canada's banking regulator had prevented these lenders from increasing their payouts during the pandemic, but with the economy making a strong comeback from the pandemic recession, these lenders are likely to resume dividend hikes and share buybacks.
Canada's six largest banks, which had ample capital after the pandemic failed to spark a protracted wave of defaults, could increase their dividends by an average of 13% if regulators allow them to resume payout increases, Bloomberg reported this week.
The Office of the Chief Inspector of Financial Institutions is expected to lift these restrictions in the second half, which would result in significant dividend hikes at most Big Six banks, according to an analysis by Bloomberg Intelligence.
]2. Enbridge
Revenue: 6.81%
Quarterly Payout: $0.69
Market Capitalization: $81 billion
Another high yield opportunity from the Canadian market is Calgary-based Enbridge (NYSE:), North America's largest gas and oil pipeline operator. Enbridge's cash flows are well spread across many companies and regions, allowing the utility to weather the economic downturn better than other companies.
For example, while the pandemic hurt oil consumption across the board, Enbridge's gas transportation, distribution and storage operations, which account for about 30% of cash flows, protected the utility and saved payout.
Enbridge weekly chart.
Over the past three years, Enbridge has implemented a restructuring plan, sold assets, focused on its key strengths and paid off its debt. These measures are likely to benefit long-term investors whose goal is to earn steadily growing income.
The company last month sold its stake in a Montreal-based natural gas distributor for C$1.14 billion in cash as it aims to keep debt levels at 4.5 to 5 times earnings before interest, taxes, depreciation and amortization. to keep. The company's other priorities include increasing its dividend, completing a major oil pipeline expansion project this year and expanding its renewable energy business.
3. BCE
Yield: 5.79%
Quarterly Payout: $0.72
Market Capitalization: $44.89 billion
Like electricity and gas companies, Canadian telecom operators also provide a solid choice for retirees to earn a steadily growing income stream. The nation's largest telecom operator BCE (NYSE:) (TSX:) is one such candidate to consider, especially as returns approach 6%.
Telecom stocks tend to outperform when long-term interest rates fall because companies, such as BCE, use a lot of debt financing to fund investment cycles. When interest rates are low, it costs them less to maintain and refinance their debt.
This strong link to long-term interest rates will allow BCE, also known as Bell, to recover quickly once the pandemic-related slowdown is over. But the stock's higher returns show investors are hesitant as telecom operators struggle as the work-from-home environment hurts their wireless and media revenues.
That slow period, which put pressure on BCE stocks during the pandemic, seems to be over. The stock is up more than 15% this year after the company beat analysts' earnings estimates in April.
