by Andrew Willis, Morningstar

After recent market downturns, value stocks may be falling back in favour.

Their ability to generate free cash flow in times of high inflation can provide resilient monthly income.

Canadian businesses that deliver value with dividends have also proven to protect on the downside.

The Morningstar Canada Index (NR) fell 8.53% as of June 27th –  not bad but greatly outmatched by the Morningstar Canada Dividend Yield Focus (NR) and its gain of 2.53%.

The flight to free cash flow has found many receptive companies, with a variety of returns year to date.

As some income stocks underperform the broad market, undervalued opportunities could be forming in value stocks.

Here’s what we think about three of the top-yielding stocks we cover in Canada right now:

Keyera (KEY) takes the cake when it comes to return and yield so far this year which is why it’s one of the best Canadian dividend stocks.

The midstream oil and gas operator caught rising energy price tailwinds and has a dividend payout ratio targeted between 50-70% of distributable cash flow.

“By increasing its proportion of long-term contracts and maximizing utilization rates across facilities, Keyera positions itself to take advantage of more stable cash flows in the future while capitalizing on Canadian oil sands, natural gas, and NGL growth,” says sector strategist Stephen Ellis, who now sees it trading around fair value and cautions on volatility.


“The firm’s marketing segment performs well in high-price environments, but it is also exposed to commodity price fluctuations.”

Enbridge (ENB) is set to continue a strong year with a “utility-like” earnings profile, says Ellis.

“The firm’s most important asset, its Mainline system, controls over 70% of Canada’s takeaway capacity and is linked to highly complex U.S. refineries that value heavy oil, meaning demand remains secure in the near to medium term despite the increase in U.S. light oil production.”

Ellis sees the stock as fairly valued and awaits news of future pipelines which could be unlikely for a few years with legal challenges and opposition from indigenous groups,

“Enbridge’s size and high profile invite challenges for new projects, which we expect to become a permanent feature.”

Last, but first in terms of returns year-to-date we have Pembina Pipeline Corp (PPL) with a strong dividend attributable to a business that is fairly evenly divided between oil, gas, and natural gas liquids, offering energy investment diversity.

The capital allocation at Pembina, however, is lacking on the growth front through acquisitions and bolt-on opportunities in new markets, notes Ellis.

“While we’d consider the overall asset quality of the firm to be solid, the returns on these investments have been at best challenged with significant assets already in decline and key projects effectively cancelled, says Ellis.


“The biggest plus, in our view, is Pembina’s dividend policy, which was ahead of many U.S. peers by years.” 

Get seven more best Canadian dividend stock ideas here…


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