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After witnessing pressure last month, Canadian equity markets are on an upward momentum, with the S&P/TSX Composite Index rising by over 1% this month. The talk of a ceasefire in the Middle East and the United States Federal Reserve indicating it will not raise interest rates despite the lack of progress in bringing interest rates down have increased investors’ confidence, driving the equity markets higher.
However, higher inflation and the impact of a prolonged higher interest rate environment on global growth could lead to a worldwide economic slowdown. So, I expect the equity markets to be volatile in the near term. Amid the uncertain outlook, investors should look to strengthen their portfolios with quality dividend stocks. Here are my three top picks.
Enbridge
Enbridge (TSX:ENB) is my first pick, given its stable cash flows, consistent dividend hikes, and high yield. The company transports oil and natural gas across North America, with around 98% of its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) underpinned by rate regulations and long-term contracts. So, its financials are less susceptible to commodity price fluctuations, thus generating stable cash flows. These predictable cash flows have allowed the company to raise its dividends for 29 consecutive years, with its forward yield currently at 7.36%.
Further, Enbridge is working on acquiring three utility assets in the United States, which could further improve the stability of its cash flows. Continuing its organic growth, the company also hopes to put $4 billion of assets into service annually this year and next. Considering its stable cash flows and growth initiatives, I believe Enbridge’s future dividend payouts will be safer, making it an attractive buy.
BCE
Another high-yielding dividend stock that I am bullish on is BCE (TSX:BCE). The Canadian telecom company has been under pressure over the last 12 months due to rising interest rates and unfavourable regulatory decisions. However, the company’s long-term growth potential looks healthy amid digitization, and remote working and learning growth. Also, the company is expanding its 5G network by recently acquiring 939 licenses.
In response to the federal government policies, BCE has reduced its capital expenditure in pure fibre expansion, which could increase its free cash flows. Telecom companies usually enjoy stable cash flows due to their recurring revenue streams, thus allowing them to reward their shareholders with healthy dividends. Meanwhile, BCE currently pays a quarterly dividend of $0.9975/share, with its forward yield at 7.36%. Amid the recent correction, its valuation looks attractive, with its NTM (next 12 months) price-to-earnings multiple at 15.1.
Pizza Pizza Royalty
My final pick would be Pizza Pizza Royalty (TSX:PZA), given its low-risk franchise business and high monthly yield. The company collects royalties from its franchisees based on their sales, making its financials less susceptible to rising commodity prices and wage inflation. Besides, the company is witnessing healthy same-store sales thanks to its menu innovations and promotional activities.
Further, PZA has added 45 new restaurants to its royalty pool from the beginning of this year. Meanwhile, it removed 14 restaurants that ended their operations, thus increasing its restaurant count by 31 units to 774. Further, the company has adopted a five-year growth strategy and expects to increase its restaurant count to over 1,100 by the end of 2028. Globally, retail sales are forecast to grow at an annualized rate of 7%, driving its royalty income. Considering all these factors, PZA is well-equipped to continue rewarding its shareholders with healthier dividends. PZA currently pays a monthly dividend of $0.0775/share, with its forward yield currently at 7%.
