BCE   (TSX:BCE, NYSE:BCE)

Dividend Yield: 4.3%    Recent Price: C$61/US$47   Fair Value: C$68/US$52

BCE is our top holding in the Dividend Champions portfolio – a position that is well-deserved given its outstanding history as a profitable operator. In fact, the company has a 60-year track record of growing dividends, including an average of 7% per year over the past five years.

BCE holds a dominant position in the Canadian telecommunications industry, which limits its growth opportunities. However, the company continues to find ways to generate growth either organically or by acquisition. The fast-growing mobile data and high-speed Internet businesses provide organic growth while selective and targeted acquisitions such as the 2014 Bell Aliant take-out and the proposed acquisition of Manitoba Telecom Services continue to expand the business.

BCE’s valuation remains attractive in absolute terms, with an enterprise value to EBITDA ratio of just over 8 and a dividend yield of 4.3%. We estimate the fair value of the stock at C$68 or US$52. In a low-interest-rate environment, this is an ideal stock to own.

K-Bro Linen Inc.   (TSX:KBL, OTC:KBRLF)

Dividend Yield: 2.9%    Recent Price: C$42/US$32   Fair Value: C$47/US$36

K-Bro Linen recently reported below-par results for the first quarter of 2016. However, some of the positive aspects were masked by a large increase in depreciation charges caused by the completion of a new production plant in Regina.

While the costs associated with the start of operations at the Regina plant and servicing of the new 3sHealth contracts depressed profits over the past two quarters, this should support profitability for the balance of the year as profit margins return to normal levels.

The balance sheet is in excellent shape, with a debt-to-capital ratio of only 5%. Cash flow from operations is abundant, growing by 60% in the latest quarter compared to last year. The dividend is well covered, with a payout ratio of only 45% of distributable cash flow.

The company has an excellent long-term track record of stable and profitable business operations. We look forward to a strong recovery in profit growth in 2016, followed by solid growth in 2017 and 2018. Analysts’ consensus estimates now indicating 60% growth in earnings per share between 2015 and 2018.

This is a stable if unexciting business, very suitable for investors who value stability and few surprises from the companies in which they invest. Investors should use price weakness to buy K-Bro below our fair value estimate of C$47 or US$36.

Inter Pipeline   (TSX:IPL, OTC:IPPLF)

Dividend Yield: 5.6%    Recent Price: C$28/US$21   Fair Value: C$31/US$24

Inter Pipeline is one of the smaller regional Canadian pipeline operators that seem to be able to maneuver their way through the regulatory and environmental minefields in a consistent and profitable way, helping to move almost four million barrels of oil per day out of the landlocked area.

The profit of the business is mostly derived from cost of service or fee-based contracts, which are generally not subject to commodity risk and provide for a relatively stable and low risk income stream. The company has built up an enviable track record of profitable growth over time and increased its dividend 10% per year over the past decade.

The balance sheet is sound, with the debt-to-capital ratio currently at a manageable 54% and an investment-grade rating from S&P. Cash flow remains strong, with operating cash flow conversion over 40% of revenue and free cash flow (operating cash flow minus sustaining capital expenditures) readily covering the dividend payments.

The main attraction from a valuation perspective is the current 5.6% dividend yield coupled with reasonable growth over the next two years. We consider the dividend safe, given the sound balance sheet and strong cash-flow generation and reasonable payout ratio.