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3 of the Best Dividend Stocks in Canada to Buy in May 2021

Aditya Raghunath
·3 min read
Target. Stand out from the crowd

Dividend stocks remain a top bet for investors looking for a predictable stream of income as well as steady gains over time. While dividend payments are not guaranteed, it is unusual to see a company suspending these payouts unless absolutely necessary. We’ll take a look at three Canadian dividend-paying stocks with strong business models that can sustain and increase these payouts across business cycles.

Enbridge

The first stock on my list is Enbridge (TSX:ENB)(NYSE:ENB), a diversified midstream energy company with a tasty dividend yield of 7%. Enbridge’s expanding base of cash-generating assets has allowed it to increase dividends at an annual rate of 10% since 1995. Around 90% of its EBITDA is backed by long-term contracts, making the company immune to fluctuating commodity prices.

While the renewable energy business accounts for just 3% of total revenue, Enbridge has several large offshore wind farm investments in Europe that will help it gain traction in this rapidly expanding market.

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Enbridge aims to keep its distributable cash flow payout ratio below 70%. In the next few years, it expects to increase DCF per share between 5% and 7%, which will help it increase dividend payments over time.

Analysts tracking the stock have a 12-month average target price of $52.18, which is 15% above the current trading price. After accounting for its forward yield, total returns will be close to 23%.

Fortis

Another dividend-paying giant in Canada is Fortis (TSX:FTS)(NYSE:FTS). Valued at a market cap of $26 billion, Fortis stock also has a forward yield of 3.7%. The company aims to increase its rate base by 6% annually from $30.5 billion in 2020 to $40 billion in 2025. This also suggests Fortis will be able to increase dividend payouts going forward — something it has done for 47 consecutive years.

In the first quarter of 2021, Fortis reported adjusted net earnings of $360 million or $0.77 per share compared to earnings of $0.68 per share in the prior-year period. Fortis is a recession-proof stock and derives most of its earnings from regulated operations that are stable and low-risk while also providing cash flow visibility. Going ahead, Fortis aims to increase dividends at an annual rate of 5% in the medium term.

Analysts tracking the stock have a 12-month average target price of $59, which is 7.7% above the current trading price. After accounting for its forward yield, total returns will be close to 11%.

Brookfield Renewable Partners

The final stock on this list is Brookfield Renewable (TSX:BEP.UN)(NYSE:BEP). In the first quarter of 2021, Brookfield Renewable generated $257 million, or $0.40 per share, in funds from operations, a rise of 33% year over year.

The clean energy giant continues to accelerate its capital-recycling program. Earlier this year, it agreed to sell over $850 million of assets that include mature onshore wind portfolios in Ireland and the United Kingdom. These asset sales enabled Brookfield to end the quarter with $3.4 billion in liquidity as well as with an investment-grade credit rating. A robust cash balance will allow Brookfield Renewable to pursue accretive acquisitions and multiple development projects in 2021 and beyond.

Brookfield Renewables has been a solid wealth creator for long-term investors. The stock has a forward yield of 3.6% and expects to return around 12% annually to shareholders.

The post 3 of the Best Dividend Stocks in Canada to Buy in May 2021 appeared first on The Motley Fool Canada.

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The Motley Fool owns shares of and recommends Enbridge. The Motley Fool recommends FORTIS INC. Fool contributor Aditya Raghunath has no position in any of the stocks mentioned.

2021