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These two high-yield dividend stocks are excellent additions to your portfolio at their current discounted prices.
Stocks in capital-intensive industries have faced pressure over the past few years due to a high-interest rate environment. However, with inflation showing signs of easing, we can expect central banks to cut interest rates by the end of the year, which would benefit these businesses. In the meantime, the following two high-yield dividend stocks are trading at attractive valuations, making them compelling buys.
Enbridge (TSX:ENB) is a diversified energy company that transports oil and natural gas across North America. Additionally, it has a strong presence in the natural gas utility and renewable energy sectors. Due to its capital-intensive nature, rising interest rates have impacted its stock price, causing the company to lose about 19% of its value since its 2022 highs. This correction has lowered its valuation, with its NTM (next 12 months) price-to-earnings ratio now at 16.2.
Enbridge operates a highly contracted business, with approximately 98% of its adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) coming from cost-of-service contracts. Furthermore, around 80% of its EBITDA is inflation-indexed, providing protection against rising prices. This stability in cash flow allows Enbridge to consistently raise its dividends. Over the past 29 years, the company has increased its dividends at a compound annual growth rate (CAGR) of 10%. Its forward dividend yield currently stands at a substantial 7.6%.
Moreover, Enbridge is progressing with its $25 billion secured capital program, investing $6 to $7 billion annually. These investments could expand its midstream, utility, and renewable asset base, delivering an annualized growth rate of 3%. Additionally, its optimization and cost-cutting initiatives could contribute another 1 to 2% of growth. Along with organic growth, the company is also focusing on strategic acquisitions. It has acquired two natural gas utility assets from Dominion Energy and is in the process of closing a third deal. These acquisitions could make Enbridge the largest natural gas utility company in North America. Increased revenue from low-risk utility businesses could further stabilize Enbridge’s financials, making future dividend payouts more secure.
BCE (TSX:BCE) The telecom sector has been under pressure over the past two years due to high-interest rates and unfavorable regulatory policies. BCE is one of the top three players in the sector, has seen its stock value drop by over 40% since its 2022 highs. This significant correction has lowered its valuation, with its NTM price-to-sales and NTM price-to-earnings ratios now at 1.6 and 14.4, respectively.
Despite this, telecom companies benefit from healthy cash flows due to recurring revenue streams. Supported by these steady cash flows, BCE has raised its dividends for 16 consecutive years, with its forward dividend yield now at an impressive 9.3%.
With the ongoing digitization and the growth in remote work and learning, telecommunication services have become essential. BCE continues to expand its 5G infrastructure and offer attractive bundled services, increasing its customer base. Its mobile customer base grew by 3.1% in the first quarter, while its average revenue per user (ARPU) remained stable.
Additionally, the company has reduced capital expenditures in unprofitable assets and undertaken workforce restructuring initiatives to improve profitability. Despite short-term challenges, I believe BCE is an excellent buy at its current levels.
