One of the best ways to increase the value of a stock portfolio while protecting it from adverse market movements is to add Canadian dividend stocks. Particularly Canadian Dividend Aristocrats, that will provide income in any market environment.
Many investors first learning how to buy stocks in Canada want to know what the best options are today. This is why we decided to make a list of the top ten options in Canada.
This list of top Canadian dividend stocks takes 3 things into consideration
The growth, safety, and current yield of the dividend.
A high-yielding income stock may be placed lower on this list due to safety, and a low-yielding stock could be placed higher on this list due to the company's dividend growth.
Warning - The best dividend stocks don't always have the highest yield
A mistake that is made time and time again with dividend investors, particularly new ones that haven't been burnt yet, is having tunnel vision on the dividend yield. They ignore the dividend payout ratio or the financial health of the company and instead chase high yields to generate larger passive income.
Unfortunately for many in early 2020, this strategy resulted in devastating consequences. We witnessed the quickest pace of dividend cuts in history, and many income stocks that were bloated in value due to their high yields saw their share prices collapse.
Chasing yield is one of the biggest and most common mistakes beginners make, and it is imperative you put the quality of the company at the top of your list, rather than how much it will pay you.
Is there an ETF to make dividend investing easier?
Many people who don't have the time to consistently monitor a dividend portfolio want to make their lives easier via an ETF. Fortunately, we have a plethora of them in Canada.
Whether it is Vanguard, Horizons, BMO or iShares, there are a wide variety of dividend ETFs Canadians can choose from to generate passive income in a single click. Some quick examples?
- Horizons Active CDN Dividend ETF (TSE:HAL)
- BMO Canadian Dividend ETF (TSE:ZDV)
- S&P/TSX Canadian Dividend Aristocrats Index Fund (TSE:CDZ)
- iShares Core S&P/TSX Composite High Dividend Index ETF (TSX:XEI)
- iShares Canadian Select Dividend Index ETF (TSX:XDV)
It's important to note that these dividend ETFs do come with management fees, and need to be considered prior to purchasing.
If you're looking for the cream of the crop in terms of Canadian dividend stocks, you'll want to read this....
This list doesn't contain any stocks we have highlighted over at Stocktrades Premium on our Dividend Bull List. If you want the true best of the best, click here to get started.
We highlight market-beating income stocks for over 1800 Canadians and have nearly tripled the overall returns of the TSX Index since our inception.
We also have a game-changing dividend safety screener that can help you make better decisions.
With that being said, let's look at some of the top dividend stocks in Canada right now.
What are the best dividend stocks in Canada?
10. Bank of Nova Scotia (TSX:BNS)
In reality, we could litter our top 10 list with Canada’s Big Five banks. They are among the most reliable income stocks in the world.
Lets start with a Canadian dividend stock that focuses on yield.
As of writing, the Bank of Nova Scotia’s (TSX:BNS) 5%~ yield is the highest of the Big 5 banks and National Bank.
Prior to the required dividend freeze, the Bank of Nova Scotia had raised its dividend every year since 2010. The bank first paid a dividend in 1833 and has never missed a dividend payment since.
It has also raised dividends in 44 of the past 46 years. The 2008 Financial Crisis halted all the dividend growth streaks of Canada’s Big Banks. However, not one cut the dividend. This is in stark contrast to what happened worldwide.
Banks like Royal Bank, Bank of Montreal, and Toronto Dominion Bank raised just prior to the pandemic in 2020, so their streaks stayed intact. CIBC and Scotiabank were not as lucky. But, don't let this discourage you. The Bank of Nova Scotia is still an excellent option for high yield seekers.
Buying the Big 5 bank that has the highest yield has proven to be a good idea historically, and locking in a yield of around 5% at a time when the Canadian 10-year bond yield is still extremely low is an opportunity too good to pass up.
Scotiabank has been mired in inconsistencies in the past and has struggled to keep up with the other major banks. This is primarily why it is currently the highest yielding. But there are signs the company is quickly turning the corner and has been one of the best in terms of performance over the last year.
Fears of a recession are likely going to have an impact on the share price of Canada's big banks. Investors may be wise to utilize this time to accumulate for the long term.
9. Canadian National Railway (TSE:CNR)
Canadian National Railway (TSE:CNR) is the largest rail company in the country. And as such, it has been a very popular option for income investors due to reliable cashflows and an incredible economic moat.
The company has over 33,000 kilometers of track and primarily hauls forest, coal, sulfur, grain, fertilizer, automotive parts, and much more. You'll likely notice that many of these products are critical to a thriving economy. And as such, railways are often referred to as the bellwether of the Canadian economy. When railways begin to struggle, it is often followed by a slowing in economic activity.
But despite being prone to different economic conditions, Canadian National Railway has thrived. The company is growing the dividend at an impressive pace. It has a dividend growth streak of 26 years and a five-year dividend growth rate of 10.4%. The stock's consistent rise in price has resulted in a low yield, with the company yielding in the low 2% range.
But, a low yield doesn't equal a poor company. Chasing yield can often get people in trouble, and despite Canadian National having an unattractive yield, it has more than doubled the returns of the TSX index over the last decade. In fact, it has put up annualized returns of just over 15% during that timeframe, more than the S&P 500.
Despite its size, CN Rail has been able to adapt, re-route and focus operations on those customers that ran essential services.
The company’s handling of the pandemic has been rightfully lauded by industry experts, and we expect CN Rail to put up strong returns moving forward despite the market pricing in a recession.
8. Metro (TSE:MRU)
Metro (TSE:MRU) is one of the largest grocers in the country and is also one of the most reliable Canadian dividend stocks to own today.
Consumer staple stocks like grocery stores tend to be viewed as "boring" options. In the midst of the COVID-19 pandemic, as growth stocks were out of control, defensive options like Metro were cast aside.
But, as we shift toward reopening and life gets back to normal, it's starting to get more attention, justifiably so.
In terms of dividends, Metro is tied for the 8th longest streak in the country with crude oil producer Imperial Oil and fellow retailer Empire Company. However, one of the clear differentiators between Empire and Metro is Metro's dividend growth.
With a 27-year dividend growth streak, the company also sports a mid-single-digit dividend growth rate over the last 5 years. From a company operating in a mature sector like Metro, this is outstanding dividend growth.
With payout ratios in terms of earnings and free cash flows in the high 20% range as well, this signals that the company shouldn't be slowing this dividend growth pace anytime soon.
The company is not a pure-play grocer either. It entered the pharmacy scene with a major acquisition of Jean Coutu in 2018, and overall it has one of the most dominant presences in Quebec out of all major grocery stores. The province currently holds over 70% of its owned and franchised food and drug stores.
You're not going to knock it out of the park with a company like Metro in terms of capital appreciation. But, you're going to get a reasonable mid-1% dividend yield and likely mid to high single-digit growth.
Not every stock inside of your portfolio needs to be flashy. And, if the capital markets continue to take a hit like we're seeing now, shareholders will likely be happy owning MRU.
7. Canadian Apartments REIT (TSE:CAR.UN)
Canadian Apartments REIT (TSE:CAR.UN) is one of the largest residential real estate trusts in the country. The trust has a dominant presence in the sector and is one of the most popular REITs in Canada.
You might be saying right now "well I'm not looking for the top REITs, I'm looking for the top dividend stocks!" But the reality is, if you're looking to build a strong dividend portfolio, there is a good chance it's going to contain a portion of REITs for a few reasons.
For one, a real estate investment trust is forced to pay back a particular percentage (90%+) of its earnings to unitholders. Being a common shareholder of stock, the dividend does not necessarily need to be placed highest on the totem pole. And secondly, due to the fallout of the pandemic in 2020 and 2021, inflation is going to be a long-standing fear and overall concern when it comes to the deterioration of investor capital.
So, what performs exceptionally well in times of high/rapid inflation? Real estate. Which is one of the reasons why CAPREIT makes this list. The company primarily engages in the acquisition and leasing of residential properties here in Canada. The company's portfolio contains both mid-tier and luxury properties and generates the majority of its revenue from the Toronto and Greater Montreal regions.
CAPREIT is in one of the best financial positions out of all Canadian REITS, with a debt to gross book value under 40%, and its dividend accounts for less than 63% of funds from operations.
In 2020, the company hit a huge milestone and was added to the TSX 60 Index, which represents 60 of the biggest companies on the Toronto Stock Exchange.
The REIT doesn't have the flashy yield that many others do in the high 2% range. However, it's important to understand that while payout ratios were high and dividends were getting cut in the sector during the pandemic, CAPREIT was at no risk of cutting the distribution. As mentioned at the start of the article, the reliability of a dividend is much more important than the overall yield.
6. Canadian Natural Resources Ltd (TSE:CNQ)
For the longest time, we avoided putting any Canadian oil producers on this list. But, the environment has certainly changed, and oil companies have a chance to perform exceptionally well over the next few years.
So, why Canadian Natural Resources (TSE:CNQ) and not a company like Suncor or Imperial Oil? Well, Canadian Natural has proven time and time again it is the best major oil and natural gas producer in the country. The company has raised the dividend for more than 2 straight decades and has double-digit 1 and 5-year dividend growth rates.
Despite major producers like Suncor and many junior producers slashing the dividend at a record pace, Canadian Natural managed to actually raise the dividend in the midst of a global pandemic and oil crisis.
The company is one of the lowest-cost producers in Canada with breakeven prices in the $35~ WTI range. This makes the company extremely reliable in almost any price environment as cash flows will remain positive.
At $70 WTI, which would be considered the low point prediction by most analysts over the next few years, Canadian Natural will be able to generate a significant amount of free cash flow, and is in an outstanding position to return it back to shareholders.
New projects and expansion are likely to be put on the backburner as balance sheets are restored, and instead Canadian Natural will likely look to return capital to shareholders through increased and special dividends along with share buybacks.
Despite the extremely bullish situation for Canadian Natural Resources, it isn't as high on this list as others. Why? The cyclical nature of the business makes it very difficult to profit from oil and gas companies over the long term. Timing a proper exit when the market begins to turn sideways or downwards is critical to outperforming.
Canadian Natural's share price still does have some upside here, but capital gains shouldn't be your focus with oil and gas producers. Instead, soak up the dividends during this oil and gas boom, and try to find an opportunity to exit when things calm down.
5. TC Energy (TSX:TRP)
We can’t talk about the top dividend stocks in Canada without mentioning one of Canada’s pipelines. TC Energy (TSX:TRP) is the second-largest midstream company in the country and it owns a 21-year dividend growth streak. This is tied for the 13th longest dividend growth streak in the country.
The company provides 25% of North America's natural gas transmission and has over 93,300 km of natural gas pipelines. Over the course of its dividend streak, it has averaged 7% dividend growth. The company has guided that it intends to grow the dividend by anywhere from 5-7% for the foreseeable future.
When the price of oil was crashing, the company continued to reiterate its dividend guidance. Now that we are seeing the price of oil recover and the economy reopen, it's likely TC Energy, despite not being impacted as much by the price of oil as a producer, will still get some of the growing oil price tailwinds.
The company has a low-risk business model in which 95% of EBITDA is generated from regulated or long-term contracted assets. This is exactly why in the midst of the pandemic it stated that operations were relatively unaffected. Many pipelines have take-or-pay contracts with producers. This means that regardless of the product shipped, the pipeline gets paid. This creates extremely reliable cash flows and is why companies like TC Energy and Enbridge have some of the safest, most reliable dividends in the country.
The company currently yields in the high 4% range, is trading at less than 16.5 times forward earnings, and is set to benefit from an energy crisis that, for many analysts, feel is just getting started.
4. Alimentation Couche-Tard (TSE:ATD.B)
Alimentation Couche-Tard (TSE:ATD) is one of the best Canadian dividend stocks to buy today, yet it doesn't get much attention in the dividend world.
Why is that? Well, we'll get to that in a bit.
With a market cap in excess of $57B, Couche-Tard is one of the largest convenience store operators in the world and has over 15,000 stores globally.
If you're from Eastern Canada, "Couche-Tard" will be a common name. However, the company tends to run under arguably its most popular brand, Circle K.
Circle K is truly a global brand, selling gasoline, beverages, food, car wash services, tobacco, and so much more across North America and Europe, but also in countries like China, Egypt, and Malesia.
Now that we know what the company does, let's move on to the dividend. Couche-Tard has been growing its dividend at an exceptional rate. In fact, the main reason Couche-Tard is on this list is because of its growth.
With a 12-year dividend growth streak, a 5-year dividend growth rate of over 20%, and a payout ratio under 12%, this is a company that is in one of the best positions in the country to fuel dividend growth for investors.
With a yield of less than 1%, it's often overlooked by income seekers. However, we do have to take into consideration overall returns here. And if we do that, Couche-Tard is simply a no-brainer.
With this type of dividend growth, its yield can only remain low if one thing is occurring, rapid share appreciation. And, this is 100% the case. In fact, a $10,000 investment in Couche-Tard just a decade ago is now worth over $91,000. At that point, I don't care about the yield. I'll sell some shares and create my own dividend!
If there's one stock on this list that should make investors reconsider how important yield is to them, it's definitely Couche-Tard. The company is a more established blue-chip play now, so growth won't be as extensive, but it's still got a ton of room.
As a bonus, it's also one of our Foundational Stocks over at Stocktrades Premium. So, click here to get started!
3. Royal Bank of Canada (TSX:RY)
The Royal Bank of Canada (TSX:RY) is the largest bank in Canada and is among the largest companies in the country. It has been named Canada’s most valuable brand for six years running and is consistently among the best performing Big Five banks.
In fact, it has been the top-performing Big Five bank over the past 10-year period. As it has matured, the other banks have started to outperform. However, make no mistake about it this company has the widest moat of any of the Big 5 due to its strong international presence.
The company has operations in the capital markets via RBC Direct Investing but also deals with commercial banking, retail banking, and wealth management.
At 39%, RBC has the 2nd lowest payout ratio among its peers, with Bank of Montreal being the lowest. The company is the Canadian bank with the most geographical exposure, with exposure in over 37 countries. This allowed the bank to perform exceptionally well during the pandemic as it was exposed to a variety of countries that were at different stages of recovery/lockdown, unlike a bank like TD Bank, which relies heavily on the United States.
Interest rate increases are set to benefit Canada's banks. However, there is a fine line here. Raising interest rates ultimately helps margins for the banks as they can lend money for higher rates. However, if the Bank of Canada were to raise interest rates significantly, it could send the country into a recession which could impact the banks.
This is likely overthinking things, as Royal Bank has proven to be an exceptional performer regardless of the economic circumstances. Royal Bank owns a 11-year dividend growth streak over which time it has grown the dividend by mid single digits annually. Now yielding in the high 3% range, the Royal Bank is deserving of its place among Canada’s top dividend stocks.
2. BCE (TSX:BCE)
When it comes to the moat and reach, BCE (TSX:BCE) ranks up there with the best. Is it the best telecom to own for overall growth? No. But, is it a dividend beast? Absolutely.
In fact, if you invested $10,000 into the company in the mid 1990's, it's looking like over $462,000 today if you had reinvested the dividends. It is the largest telecommunications firm in the country and provides services to over 9.6 million customers across Canada in the form of its wireless, wireline, and media segments.
It is the only one of Canada’s Big Three telecoms to have a strong presence from coast-to-coast. Rogers tends to have more exposure in the east, and Telus in the west.
BCE currently yields in the mid-5% range, which is right around the company's historical average. The company has a 13-year dividend growth streak over which time it has averaged approximately mid single-digit dividend growth.
At first glance, the 13-year dividend growth streak might not seem that impressive considering the company’s long and storied history. However, the streak is a little misleading. The company froze the dividend in 2008 when it was being taken private by a group led by the Ontario Teachers Plan.
However, the deal ultimately fell through and the company resumed growing the dividend. Since it went public in 1983, BCE has never missed a dividend payment, nor has it cut the dividend.
One of the biggest drawbacks of the company is the high payout ratios. Currently, the dividend accounts for more than 100% of earnings.
If we look at free cash flow, the company is also paying out more than 100%. However, this is likely due to the company taking advantage of an ultra-low interest rate environment. It is very likely the company scales back investments as rates continue to rise, which should normalize payout ratios.
BCE is neither cheap nor expensive when compared historically or to its peers. Not surprising as BCE is one of the most consistent and reliable stocks in the country. Don't expect earth-shattering returns from the company's share price. But, own this one for a decade and reinvest the dividends, and you'll likely be happy.
1. Fortis (TSX:FTS)
Fortis (TSX:FTS) has been a mainstay on our list of top dividend stock for years. As the largest utility company in the country, Fortis is arguably one of the most defensive stocks to own.
Fortis owns the second-longest dividend growth streak in Canada. At 48-years long, the company will be among the first Canadian stocks to reach Dividend King status – a prestigious status reserved for those who have raised the dividend for at least 50 consecutive years.
Given our current environment of uncertainty, dividend safety and reliability is the main reason why Fortis is our top dividend stock in Canada. Throughout the past three, five, and ten-year time frames, Fortis has consistently raised the dividend by approximately 6%.
Further demonstrating its reliability, Fortis is one of the few companies which provides multi-year dividend growth targets. Through 2024, Fortis expects to raise the dividend by 6% annually – in line with historical averages.
Unlike Royal Bank which would have benefitted from rising interest rates, a company like Fortis would be negatively impacted by interest rates. This is because utilities are a capital-intensive industry, one that requires a lot of capital investments and debt to build infrastructure like power generation facilities and transmission lines.
However, Fortis's movement in price has been relatively unimpacted by rising rates, and likely won't be moving forward. That is a strong sign of confidence in the company.
$10,000 in Fortis in the mid 1990's is now over $300,000 if you reinvested your dividends. The company has simply been an exceptional performer.
And, with a beta of 0.05, indicating this stock is 1/20th as volatile as the overall market, it seems to operate almost more like a bond.
Combine strong dividend growth with an attractive yield in the mid-3 % range and you are looking at the top income stock to own in Canada today. Not only can investors lock in a safe and attractive dividend, but they can also do so at respectable valuations.