Two Top Canadian Dividend Stocks to Buy in April

WRITTEN BY Dan Kent | UPDATED ON: April 8, 2024

Best Performing Stocks in Canada

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Numerous Canadian investors have the goal of sustaining their livelihood through the dividend income produced by their portfolios. Dividend disbursements from trustworthy Canadian companies offer a robust form of passive income and serve as a fundamental asset in the portfolios of many retirees.

It just so happens that many Canadian dividend stocks are witnessing large drawdowns at this point in time due to a weaker Canadian economy and higher interest rates impacting the attractiveness of their dividends and the financing costs they carry on their debt.

However, as stock prices drop, expected returns increase. Accumulating stocks at discounted valuations has proven to be a winning strategy. So, let's review a couple of Canadian stocks currently in the dumps that could be solid rebound plays.

Telus (TSE:T)

The Canadian telecom sector is one of the most heavily regulated on the planet. Three major players control over 94% of the industry's market share, and Canadians generally have three places to get their phone, internet, and television products: Telus, Rogers, or Bell.

If you're going to a smaller provider, it is likely simply a subsidiary of one of the Big 3. As a result, cash flows are consistent, earnings are reliable, and the companies have paid consistent dividends for decades.

Why Telus over the other two? Primarily due to its exposure to higher margins businesses involved in technology-based industries over media assets like Television and radio. Think of things like Telus Agriculture, Telus Health, and Telus International.

Because of these businesses, the company is expected to have some of the strongest cash flow generation out of the Big 3 next year, and in addition to this, some of the strongest earnings growth. Although earnings are only expected to grow in the high single digit range this year, analysts figure policy rates will decline and earnings will improve materially heading into 2025 and 2026, with 20%+ annual growth expected.

Because of the dip in price, the company is currently providing a very attractive yield in the mid-6% range. Although its earnings payout ratio seems high at 150%, the company's free cash flow guidance looks to be enough to cover the dividend in 2024, with improving ratios moving into 2025.

Fortis (TSE:FTS)

Very few industries, if any, can contend with the reliability of the regulated utility sector. With Fortis generating 99% of its earnings from regulated utilities, it is one of the country's most reliable income stocks.

What exactly is a regulated utility? It owns all of the generation and distribution means. That means it owns the plants, lines, cables, and even the meter box. It then discusses an appropriate rate with the municipality that not only guarantees a profit for the utility but is also fair for the customer.

Because they own all of the generation and distribution means, it makes competition non-existent. As a result, Fortis and other regulated utilities cash flows are very reliable.

This is exactly why the company is a Dividend King, one of only two here in Canada. A Dividend King is one that has grown its dividend for 50+ consecutive years. It is an exceptionally difficult accomplishment.

Utility stocks are very sensitive to interest rates. As a result, Fortis has been stuck in a bit of a rut over the last few years. As rates go higher, the attractiveness of slower-growing high-yielding stocks goes down. This is because investors can lock in fixed-income assets that yield similar results while not exposing them to equity risk.

As a result, Fortis is trading at attractive valuations right now. With a dividend yield in the mid 4% range and payout ratio of less than 50%, the company should be able to not only continue paying the dividend but raising it at a mid double-digit pace.

Overall, these two dividend stocks should provide a strong opportunity for investors

Future returns are never guaranteed in the markets, lets get that straight. However, both of these companies are currently being beat down by higher interest rates and ultimately should see a recovery in price and earnings when policy rates inevitably come down.

I own both in my portfolio, and plan to continue holding them for the long term.