BCE  (TSX: BCE, NYSE: BCE)

Dividend Yield: 4.4%    Recent Price: C$61/US$47   Fair Value: C$71/US$55

BCE remains one of our best ideas for new money apart from holding the top position in our 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, with the past five years delivering growth of 7% per year.

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. Its 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.

Second-quarter results were solid, and the stock’s valuation remains reasonable. The relatively safe dividend is expected to continue growing at 5% per year, and the attractive yield is currently 4.4%. In a low-interest-rate environment, this is an ideal stock to own. We estimate the fair value of the stock at C$71 or US$55.

Fortis Inc. (TSX: FTS, OTC: FRTSF)

Dividend Yield: 3.6%    Recent Price: C$41/US$31   Fair Value: C$46/US$36

Fortis is a Canadian-based electric and gas utility with a well-diversified portfolio of assets in Canada, the U.S. and the Caribbean. The company boasts over three million customers and revenues of almost C$7 billion, placing it company among the top 25 utilities in North America.

Fortis has an excellent long-term record of stable performance aptly demonstrated by 42 years of unfailing dividend increases.

Fortis’ balance sheet remains in good condition, with a debt-to-capital ratio of 55% even though the A- S&P credit rating has been moved to a negative outlook after the announcement of the ITC acquisition.

A key focus for Fortis is the completion of its US$11.3 billion acquisition of ITC, the Midwest U.S. transmission business. Financing arrangements for the transaction received a major boost with the sale of a 19.9% interest to the Singapore Wealth Fund for US$1.2 billion. The regulatory review process is underway, and the final closing of the transaction is expected in late 2016. Management expects the transaction to make a positive contribution to earnings per share in the first full year of operation.

The company intends to grow its dividend by 6% per year for the foreseeable future, which is supported, in our view, by strong cash flow and a reasonably leveraged balance sheet. We estimate the fair value at C$46 or US$36 with a dividend yield of 3.6%.

Inter Pipeline  (TSX: IPL, OTC: IPPLF)

Dividend Yield: 5.4%    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. The company helps to move almost 4 million barrels of oil per day out of the landlocked area.

The business’ profit is derived mostly from cost of service or fee-based contracts, which are generally not subject to commodity risk and provide for a relatively stable, 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 10 years.

The balance sheet is sound, with the debt-to-capital ratio currently at a manageable 54%. The company enjoys 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.

Second-quarter results were strong, confirming again the positive outlook for the business. The main attraction from a valuation perspective is the current 5.4% dividend yield coupled with reasonable growth over the next two years. We consider the dividend safe, given the company’s sound balance sheet, strong cash flow generation and reasonable payout ratio.