High-Yield Dividend Stocks Set to Soar with Easing Interest RatesHigh-Yield Dividend Stocks Set to Soar with Easing Interest Rates Amid the recent high interest rate environment, stocks with capital-intensive businesses have faced downward pressure. However, with inflation showing signs of easing, central banks are expected to cut interest rates before year-end, providing relief to these companies. In this context, two high-yield dividend stocks stand out as attractive buys due to their discounted valuations: Enbridge (TSX:ENB) * Diversified energy company with operations in oil and gas transportation, natural gas utilities, and renewable energy. * Capital-intensive business, but highly contracted with 98% of adjusted EBITDA from cost-of-service contracts. * 80% of EBITDA is inflation-indexed, providing protection against rising prices. * Consistent dividend growth with a CAGR of 10% over the past 29 years. * Juicy forward dividend yield of 7.6%. * Ongoing $25 billion capital program, expected to drive growth and secure future dividends. B.C. (TSX:BCE) * Leading telecom provider in Canada. * Steep correction has led to attractive valuation multiples of 1.6 NTM price-to-sales and 14.4 NTM price-to-earnings. * Impressive dividend yield of 9.3%. * Increasing dividends for 16 consecutive years. * Essential telecommunication services with growing demand for 5G connectivity. * Expansion of mobile customer base and improvement in profitability through reduced capital expenditures and workforce restructuring. As interest rates ease, these capital-intensive and high-yield dividend stocks are poised to benefit significantly. Their discounted valuations present an excellent opportunity for long-term investors seeking income and growth potential.
Stocks with capital-intensive businesses have been under pressure in recent years due to a high interest rate environment. With inflation showing signs of abating, we can expect central banks to cut interest rates before the end of this year, which will benefit capital-intensive businesses. Meanwhile, the following two high-yield dividend stocks are trading at lower valuations, making them attractive buys.
Enbridge
Enbridge (TSX:ENB) is a diversified energy company that transports oil and natural gas across North America. It also has a strong presence in the natural gas utilities and renewable energy sectors. Given its capital-intensive business, rising interest rates have weighed on the stock price, with the company losing about 19% of its share value compared to its 2022 highs. The correction has dragged down its valuation, with its NTM (trailing 12 months) price-to-earnings ratio at 16.2.
Enbridge operates a highly contracted business, with about 98% of its adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) generated from cost-of-service contracts. Furthermore, about 80% of its EBITDA is indexed for inflation, which provides protection against rising prices. As a diversified energy company, it generates steady cash flows, allowing it to consistently increase its dividend. Over the past 29 years, the company has increased its dividend at a CAGR (compound annual growth rate) of 10%. Furthermore, its forward dividend yield is a juicy 7.6%.
Enbridge is also continuing its $25 billion secured capital program, investing $6 billion to $7 billion annually. These investments could expand its midstream, utility and renewable asset base, generating 3% annual growth. Additionally, its optimization and cost-saving initiatives could generate an additional 1% to 2% growth. In addition to organic growth, the company is also focusing on strategic acquisitions. It has acquired two natural gas assets from Dominion Energy and is working to close a third deal. These acquisitions could make the company the largest natural gas company in North America. Increasing revenues from low-risk utilities could further stabilize Enbridge’s finances, making future dividend payments more secure.
B.C.
The telecom sector has been under pressure over the past two years due to high interest rates and unfavorable regulatory policies. B.C. (TSX:BCE), one of the top three players in the sector, has lost more than 40% of its share value from its 2022 highs. The steep correction has dragged down its valuation, with its NTM price-to-sales and NTM price-to-earnings multiples at 1.6 and 14.4, respectively.
Meanwhile, telecom companies enjoy healthy cash flows thanks to recurring revenue streams. Backed by these stable cash flows, BCE has increased its dividends for 16 consecutive years, while its forward dividend yield has risen to an impressive 9.3%.
Amid digitalization and growth in remote working and learning, telecommunication services have become essential. BCE continues to expand its 5G infrastructure and offer attractive bundled deals, expanding its customer base. Mobile customer base grew 3.1% in the quarter ended March, while ARPU (average revenue per user) remained unchanged.
Furthermore, the company has drastically reduced its capital expenditures in loss-making assets and has undertaken workforce restructuring initiatives to improve its profitability. So despite the short-term weakness, I think BCE would be an excellent buy at these levels.
