If you’re looking to set yourself up with a healthy retirement, investing in Canadian dividend stocks is one of the best possible strategies to do so. Growth stocks provide the potential for outsized returns, but in general pose higher risk for ruin in the event of a stock market crash or lackluster results.
Finding Canadian dividend companies that are continually paying and raising dividends can create a snowball effect, especially when dividends are DRIP’ed. Keep in mind however, the dividend alone is not a reason to buy a stock. The stock must still present an excellent entry opportunity. Buying dividend stocks at a premium could result in a loss due to stock depreciation, wiping your dividend out in the end.
Here are two dividend stocks that are both undervalued and provide excellent dividend growth.
Canadian Natural Resources (TSX:CNQ)
Canadian Natural Resources (TSX:CNQ) is an independant crude oil and natural gas company. The company has a balanced and diversified product base. CNRL has a strong history of generating significant cash flows and is able to relay this into one of the best performing dividends in the country.
The company has more than doubled its earnings from one year ago today, posting diluted earnings per share of $3.17 compared to just $1.27 in 2018. Adjusted funds flow has dipped from $5 billion to $4.8 billion year over year, however this could be attributed to higher oil prices realized throughout most of 2018.
In terms of dividend, Canadian Natural has raised dividends for 18 straight years, and has the highest 5 year dividend growth rate out of all major oil and gas companies at 18%. At this rate, the company is set to almost double its dividend every 5 years. Its most recent increase of 11% doesn’t quite match its 5 year rate, but with the negative sentiment towards the oil and gas sector right now, a double digit dividend increase is still an excellent achievement.
The company currently yields 4.54%. And with only 49% of the company’s free cash flows being used to pay its dividend, a one year estimate price of $45.56, Canadian Natural at $33.25 is one of the better dividend stocks to own right now.
OpenText (TSX:OTEX)
OpenText (TSX:OTEX) is a software development company that specializes in providing EIM (Enterprise Information Management) software to companies and government agencies across the globe.
Data management services aren’t going anywhere. In fact, it’s turned from a luxury to almost a necessity in today’s business world. As such, the company has partnered with one of the biggest data operators in the world, Google. It’s partnership will allow its applications to be available via Google’s cloud based system, and will also integrate with popular apps such as Google Sheets and Google Drive.
Another partnership Opentext has entered recently is with Mastercard. The company plans to partner with the credit card giant to increase financial efficiencies across the automotive industry.
Along with these partnerships, OpenText aims to improve operational efficiencies via acquisitions. Since late 2016, the company has spent over $2.5 billion on acquisitions, and has been able to synergize these acquisitions with alarming efficiency thus far.
OpenText’s yield is small at 1.17%, but it’s hard to not be excited by the rate the dividend is growing. With a 5 year dividend growth rate of 21%, OpenText is set to double it’s dividend every 5 years. It has a 6 year dividend growth streak qualifying it for Canadian Dividend Aristocrat status. The company is using only 21% of free cash flows to pay its dividend, and its payout ratio of 59% shows there is a lot more room for this dividend to grow.
Combine that with analysts figuring the company will grow at a clip of 11.40% annually over the next 5 years, and you have the potential to receive some outsized returns in terms of stock appreciation and dividend growth with OpenText.