After a solid performance last month, the equity markets have turned volatile this month, with the S&P/TSX Composite Index falling 1.5%. The recently released economic data from the United States have raised concerns about global growth. Also, the delay in rate cuts by the United States Federal Reserve has made investors nervous, leading to a pullback. Considering all these factors, I expect the equity markets to remain volatile this month. So, investors should look to invest in high-quality dividend stocks that are less susceptible to market volatility. Meanwhile, here are my two top picks.
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Enbridge
Enbridge (TSX:ENB) operates diversified low-risk businesses that generate stable and predictable cash flows, irrespective of the broader market conditions. Supported by its consistent performance, the company has delivered over 925% returns in the last 20 years at an annualized rate of 12.3%. Moreover, its contracted cash flows and inflation-indexed adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) offer more visibility on its cash flows, thus allowing it to raise its dividends consistently. Over the last 29 years, the company has increased its dividends at an annualized rate of over 10%.
Further, Enbridge is expanding its pipeline, utility, and renewable assets through its $24 billion secured capital program. The energy giant expects to invest around $6 billion this year while putting around $4 billion of projects into service. Besides, it has expanded its utility asset base by acquiring two natural gas utility facilities in the United States from Dominion Energy. It is also working on acquiring the third facility, which the company expects to complete this quarter. These acquisitions would lower Enbridge’s business risks while stabilizing its cash flows further. The company’s financial position looks healthy, with its liquidity at $18 billion as of June 30. Its debt-to-EBITDA multiple stands at 4.9, within the company’s guidance.
Given its low-risk businesses, healthy growth prospects, and solid balance sheet, Enbridge is well-positioned to continue raising its dividends consistently. Moreover, its valuation looks reasonable, with the company trading two times its projected sales for the next four quarters, making it an excellent buy in this uncertain outlook.
Fortis
Fortis (TSX:FTS) operates a low-risk, regulated utility business, meeting the electric and natural gas needs of 3.5 million customers. With around 99% regulated assets, the company has delivered consistent financials and generated stable cash flows, allowing it to raise its dividends for the previous 50 years. Its forward dividend yield currently stands at 3.9%. Besides, the company’s average total shareholder returns for the last 20 years stand at 11.2%, comfortably outperforming the broader equity markets.
Meanwhile, the company has planned to invest around $25 billion from 2024 to 2028, with around $7 billion in clean energy. These growth initiatives could expand its rate base at an annualized rate of 6.3%. Amid these growth initiatives, the company’s management is confident of raising its dividends by 4-6% annually through 2028. Moreover, the Bank of Canada has slashed its benchmark interest rates three times this year and could continue to lower its interest rates further. Given its capital-intensive business, Fortis could benefit from the Bank of Canada’s monetary easing policies.
Its low-risk utility business, healthy growth prospects, and reasonable price-to-book multiple of 1.4 make Fortis an attractive buy in this volatile environment.
