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Telus is a compelling investment because it has five-year dividend growth rate of 7.2 per cent, it’s part of an oligopoly and has weathered the COVID-19 lockdowns and slowdowns pretty well.Fred Lum/the Globe and Mail

Faced with interest rates that will be low for several years, yield-hungry investors may want to seek opportunities among Canadian dividend stocks.

Central banks in Canada and the United States plan to keep rates near zero until at least 2023 to stimulate their economies hurt by the COVID-19 pandemic. That means that government bonds will struggle to keep pace with inflation.

Higher-yielding dividend stocks are not without risk because they are, after all, equities. And ultra-high yields from stocks of troubled companies may not be sustainable. Still, there are firms with stable cash flows that will allow them to maintain and raise payouts – and their stocks still trade below pre-pandemic highs.

We asked three fund managers for their top picks among higher-yielding dividend payers.

Stephen Groff, principal and portfolio manager, Cambridge Global Asset Management, a division of CI Investments Inc.

His fund: Cambridge Canadian Dividend Fund

The pick: TC Energy Corp. (TRP-T)

Forward annual dividend and yield: $3.24 (5.7 per cent)

Energy infrastructure giant TC Energy is an attractive dividend play because it operates “more like a utility than an energy stock,” Mr. Groff says. The Calgary-based pipeline operator, which has a natural gas focus, gets most of its earnings before interest, taxes, depreciation and amortization (EBITDA) from regulated businesses and long-term contracts, he adds. It also has $37-billion in capital projects to help grow its dividend, which it has raised annually for 20 years. On adjusted funds from operations for 2021, it has a payout ratio of 57 per cent. TC Energy’s shares, which are sensitive to rising interest rates, trade attractively at 13 times 2021 earnings, he says. U.S. President-elect Joe Biden has pledged to scrap its proposed Keystone XL Pipeline to carry oil from Alberta to U.S. refineries, but that’s priced into its stock, he says. “Too me, it’s free upside … if it happens.”

The pick: Power Corp. of Canada (POW-T)

Forward annual dividend and yield: $1.79 (6.1 per cent)

Investors in the financial services holding company can get a 6-per-cent yield and a bargain valuation because its shares trade at a 25-per-cent discount to net asset value, Mr. Groff says. “If the discount to NAV continues to shrink, you get a bonus.” Montreal-based Power’s units include Great-West Lifeco Inc., IGM Financial Inc. and alternative asset manager Sagard Holdings Inc. It also has small stake in financial technology firm Wealthsimple Inc. Over the past year, the holding company’s structure has been simplified by converting its Power Financial Corp. unit into Power Corp. and appointing Jeffrey Orr as chief executive officer to succeed the retired co-CEOs, brothers Andre Desmarais and Paul Desmarais Jr., he says. “It’s also cutting costs, and it’s getting better every quarter.” Power’s earnings payout ratio is 54 per cent, he says. A risk is poor execution in its acquisition of a large asset manager.

Steve DiGregorio, portfolio manager, Canoe Financial LP

His fund: Canoe Premium Income Fund

The pick: WPT Industrial Real Estate Investment Trust (WIR.U-T); (WIR.UN-T)

Forward annual dividend and yield: US0.76 cents (5.6 per cent)

This U.S.-focused industrial real estate investment trust (REIT) offers a rock-solid payout and dividend-growth potential, Mr. DiGegorio says. Toronto-based WPT REIT, whose 102 distribution warehouses are tied to e-commerce, has clients that include General Mills Inc. and Inc. A potential tailwind is its focus on Tier 2 markets as more people move to smaller U.S. cities and can potentially work from home, he adds. Alberta Investment Management Corp. is its biggest shareholder, with an almost 18-per-cent stake. The REIT, which has traded in U.S. dollars in Canada, began to offer a Canadian-dollar listing this year. The security trades around 15.5 times 2021 adjusted funds from operations, and that is at a discount to its U.S. peers as well as Canadian industrial REITs, such as Granite and Dream Industrial, he says. The biggest risk for the REIT is rising interest rates.

The pick: Fortis Inc. (FTS-T)

Forward annual dividend and yield: $2.02 (3.8 per cent)

This North American regulated gas and electric utility company, which has raised its dividend for 47 consecutive years, is “as close to being a bond-like equity as you can get,” Mr. DeGregorio says. St. John’s, Nfld.-based Fortis is also an indirect way to “invest in the green economy,” he adds. Because Fortis’s transmission and distribution networks represent 93 per cent of its business, it will benefit from the decarbonization of the electricity grid, he says. Although U.S. President-elect Joe Biden may have hurdles getting approval for his US$2-trillion climate strategy under a Republican-dominated Senate, utilities are run by U.S. states, so they can do what they want, he says. Fortis’s shares trade attractively at about 10.5 times enterprise value to EBITDA. Rising interest rates are a risk to this stock.

Michael Simpson, portfolio manager, NCM Asset Management Ltd.

His Fund: NCM Norrep Fund

The pick: Telus Corp. (T-T)

Forward annual dividend and yield: $1.24 (5.1 per cent)

The telecommunications provider is a compelling investment because it has five-year dividend growth rate of 7.2 per cent and is part of an oligopoly, Mr. Simpson says. Vancouver-based Telus, which dominates the domestic market along with BCE Inc. and Rogers Communications Inc., “has weathered the [COVID-19] lockdowns and slowdowns in the economy pretty well,” he adds. Because telecom is a mature industry, it has diversified into other sectors. Telus has investments in health and agriculture and plans to spin out its Telus International unit in an initial public offering next year. Excluding maintenance capital expenditures, Telus’s payout ratio is about 78 per cent. Telus trades at 18 times 2022 earnings, which is a little bit high, but reasonable for a large company in an oligopolistic industry, he says. Slow economic growth and increased competition are risks to the stock.

The pick: Keyera Corp. (KEY-T)

Forward annual dividend and yield: $1.92 (8.6 per cent)

Keyera, a midstream oil and gas operator, offers a robust yield, but it also has “one of the best balance sheets among energy infrastructure companies,” Mr. Simpson says. The Calgary-based company provides various services to the energy sector, including natural gas liquids processing, fractionation, storage, transportation and marketing. It also has a plant that manufactures iso-octane used in gasoline to make vehicles run more efficiently, he adds. “Its management is also one of the best in the industry.” Keyera’s stock, which plunged to the $10.48 a share range in March, has been rebounding amid improving natural gas prices. The company, which has a payout ratio of 61 per cent, trades attractively at around 12 times 2022 earnings, he says. “The risks are slower economic growth, lower commodity prices and customers being under duress.”