These 3 High-Dividend Canadian Stocks Are Worth a Look

When searching for great dividend stocks, there is a wide variety of factors to consider. Among them are earnings durability, recession resilience, dividend safety, and competitive advantages. However, geographic diversification is something we find investors often overlook.

Canadian stocks listed in the US tend to be undervalued relative to industry peers based in the US, and that not only means the margin of safety is better for the shareholder, but dividend yields are higher as well. Here we’ll profile three Canadian high-dividend stocks in three different industries that we like for their strong value and yield propositions today.

We note that all dollar figures below are US dollars, converted from Canadian dollars.

Enbridge Inc.

Our first stock is Enbridge (ENB) , an energy infrastructure company based in Calgary, Canada. The company operates five segments: Liquids Pipelines, Gas Transmission and Midstream, Gas Distribution and Storage, Renewable Power Generation, and Energy Services. Through these segments, Enbridge offers a wide variety of energy-related services from transportation of oil and natural gas, gathering and processing facilities, wind and solar assets, and much more. Enbridge is a truly diversified energy company with traditional fossil fuels and renewables as part of its portfolio.

The company was founded in 1949, produces about $40 billion in yearly revenue, and trades with a market capitalization of $95 billion.

We see growth as decent for Enbridge moving forward, estimated at 4% annually. Enbridge has a history of producing fairly reliable growth, especially considering the inherent volatility of operating an energy business. However, the diversification the company’s portfolio displays has served it well, and we believe its focus on renewables is a key differentiator for the years to come.

The company continues to invest billions of dollars into growth projects, and the company is targeting cash flow gains of 5% to 7% per year. We are a bit more conservative given the high base of earnings for 2022.

Enbridge’s competitive advantage is primarily its enormous footprint, which counts for much in a commodity business. While Enbridge isn’t necessarily able to differentiate its service offerings because it operates a commodity business, scale is king and we therefore see competitive threats as limited.

We see robust 8.2% total returns for Enbridge in the coming years, as the stock sports a nice 5.6% dividend yield, has 4% estimated annual growth, and is slightly overvalued. Shares trade for 11.5 times cash flow today, which is just over our estimate of fair value. That should produce a minimal headwind to total returns of less than 1%.

Canadian Utilities Limited

Our next stock is Canadian Utilities (CDUAF) , a company that operates a sizable electric, and natural gas utility in Canada. The company has electricity transmission and distribution services, natural gas transmission and distribution, storage facilities, and more. It operates primarily in Alberta, the Yukon, and the Northwest Territories.

Canadian Utilities was founded in 1927, produces about $3 billion in annual revenue, and trades with a market capitalization of $8.4 billion. The company also has a very impressive 50-year streak of consecutive dividend increases in Canadian dollars.

We see growth potential for Canadian Utilities at 4% annually, driven by the combination of new projects, and base rate increases. As a regulated utility, the company enjoys the protection against new entrants, but that means it must ask for pricing increases. However, the company has demonstrated the ability to achieve these slow but steady pricing increases over time, and we don’t cause for that not being the case moving forward.

The obvious competitive advantage for Canadian Utilities is the fact that it’s regulated, which means it operates what amounts to a monopoly in its service area. That keeps the company’s earnings quite reliable and sustainable, and means there is essentially no competitive threat. That also helps Canadian Utilities weather recessions, and is a big reason why it has been able to boost its dividend for 50 consecutive years.

We expect 6.2% annual returns to shareholders in the coming years from the combination of earnings growth, the yield, and change in the valuation. We noted 4% expected earnings growth, and the stock yields 4.5% today. There is, however, an offsetting factor of a ~2% headwind from the valuation. This is due to the fact that shares trade for 17.5 times this year’s earnings, which is ahead of our estimate of fair value at 16 times earnings.

The Bank of Nova Scotia

Our final stock is Bank of Nova Scotia (BNS) , colloquially referred to as Scotiabank. The company offers a wide variety of traditional banking products, such as deposits, checking and savings accounts, and various lending products. It also offers wealth management services, business deposit and lending products, investment services, and more. Scotiabank operates almost a 1,000 branches in Canada, as well as another 1,300 branches globally.

Scotiabank was founded in 1832, generates over $25 billion in annual revenue, and is valued today at a market capitalization of $80 billion.

Scotiabank has averaged growth of about 5% annually in recent years, and that is where we assess future projected growth. The bank’s Canadian markets are fairly stable and produce relatively modest growth. However, its Canadian markets offer stability from an economic and geopolitical perspective.

We see higher rates of growth, but also higher levels of earnings volatility, from the bank’s international markets, including places like Chile, Peru, and the Caribbean. Scotiabank is marking itself aside from other Canadian banks with its relatively aggressive international push, and we like this effort to boost growth in the coming years, provided prudent credit risks are taken in doing so.

Scotiabank’s competitive advantages are that of size and scale, as banks all offer roughly the same products and services, and for roughly the same prices. However, we believe Scotiabank’s reputation build over nearly 200 years, as well as its vast network help it compete against smaller entrants.

Expected returns are very strong, coming in at 11% per year. We see this accruing from the 4.7% dividend yield, 5% projected growth, and a 2% tailwind from the valuation. Shares trade for just 10.3 times this year’s earnings, which is below our estimate of fair value at 11.4 times earnings.

Final Thoughts

While high-yield stocks are available in the US for investors to choose from, we like Canadian stocks for their relatively low valuations compared to US peers. This helps drive above-average dividend yields as well, and we like Enbridge, Canadian Utilities, and Scotiabank for these reasons.

All offer very strong dividend yields and reasonable valuations, as well as mid-single digit earnings growth potential in the years to come. Plus, they offer US investors some geographical diversification, and we think they’re worth a look for income-focused investors.

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