Most of the best Canadian stocks pay a dividend. Canadian dividend stocks are known for their stability when markets are rough, and for the income they provide investors quarterly. Companies operating in sectors such as telecoms, utilities, REITs and banks will protect you against market fluctuations and severe losses.
Not all dividend-paying companies are good investments. However, investing in dividend stocks could also lead to painful losses and income cuts. The risk of buying dividend traps or seeing your retirement income plummet due to the wrong stock selection happens too often.
The market creates bubbles and hurts your portfolio. You worked hard to invest money, and you shouldn’t lose it to the wolfs of Bay Street. There is a way you can invest safely in Canadian dividend stocks.
What are the best Canadian dividend stocks?
When I built my retirement portfolio, I focused on companies showing a combination of safe income and steady growth. Many of my choices are Canadian Dividend Aristocrats (companies showing several years of consecutive dividend increases). I added a few more metrics and used the DSR stock screener to refine my research.
Here are the best Canadian Dividend Stocks for 2022:
#12 Canadian National Resources
How to Buy in Canadian dividend stocks
#14 Canadian Net REIT
This is an interesting small REIT that has flown under the radar. Canadian Net REIT enjoys stable cash flows from its properties under the triple net lease formula (tenants handle insurance, taxes, and maintenance costs). Triple net lease REITs let tenants manage more risk as they handle all expenses involving the property. The REIT has high quality tenants such as Loblaws (25% of NOI), Walmart (11%), Sobeys (10%), Suncor (7%) and Tim Hortons (6%).
The REIT’s portfolio makes this company quite resilient to any kind of recession. We got a good idea of how NET fared during the 2020 lockdowns as its revenue continued to increase. The bulk of its properties are situated in the province of Quebec, with a small number in Ontario and the Maritimes. We should keep in mind that the company trades on the TSX. This small cap (around $150M of market capitalization) is subject to low trading volume and strong price fluctuations. Follow this one quarterly to make sure the situation remains stable.
#13 Emera
Emera is an interesting utility with a solid core business established on both sides of the border. EMA now has $32 billion in assets and will generate annual revenues of about $6 billion. It is well established in Nova Scotia, Florida, and four Caribbean countries. This utility is counting on several green projects consisting of both hydroelectric and solar plants. Between 2022 and 2025, management expects to invest $8.4 to $9.4B in new projects to drive additional growth.
These investments decrease the risk of future regulations affecting its business as the world is slowly making the shift toward greener energy sources. Most of its CAPEX plan (about 70%) will be deployed in Florida, where Emera is already well-established. In general, Florida offers a highly constructive regulatory environment; in other words, EMA shouldn’t have any problems raising rates. This is a “sleep well at night” investment.
#12 Canadian National Resources
In a world where the West Texas Intermediate (WTI) trades at $75+ per barrel, CNQ would be a terrific investment (here is your cue since the WTI is trading way over $70 lately!). It is sitting on a large asset of non-exploited oilsands and reaches its breakeven point at a WTI of $35. What cools our enthusiasm is the strange direction oil has taken along with the fact that oilsands are not exactly environmentally friendly. Many countries are looking at producing greener energy and electric cars. This could slow CNQ’s ambitions.
However, CNQ is very well positioned to surf any oil booms. The stock price has more than doubled in value since the fall of 2020. It has previously invested very heavily, and it is now generating higher free cash flow because of past capital spending. CNQ exhibited resiliency in 2020, and this merits a star in their book!
#11 Canadian National Railway
CNR has been known for being the “best-in-class” for operating ratios for many years. CNR has continuously worked on improving its margins and was among the first to do so. Today, peers have caught up and all railroads are managed in the same way. CNR also owns unmatched quality railroads assets. It has a very strong economic moat as railways are virtually impossible to replicate so we can therefore count on increasing cash flows each year. Plus, there isn’t any more efficient way to transport commodities than by train.
The good thing about CNR is that an investor can always wait for a down cycle to make an investment. We can often spot a good occasion around the corner since we see railroads as attractive investments. Finally, the cancellation of the Keystone XL pipeline will drive demand for oil transport via railroads and CNR will benefit. Management is being challenged and we should see more growth emerging from this challenging period.
#10 Enbridge
ENB’s customers enter 20-25-year transportation take or pay contracts. This means that ENB profits regardless of what is happening with commodity prices. ENB is also well positioned to benefit from the Canadian Oil Sands as its Mainline covers 70% of Canada’s pipeline network. As production grows, the need for ENB’s pipelines remains strong. Following the merger with Spectra, about a third of its business model will come from natural gas transportation.
Enbridge has a handful of projects on the table or in development. It must deal with regulators, notably for their Line 3 and Line 5 projects. Both projects are slowly but surely developing. The cancellation of the Keystone XL pipeline (TC Energy) secures more business for ENB for its liquid pipelines. ENB now has a “greener” focus with its investments in renewable energy.
#9 Granite REIT
GRT used to be an extension of Magna International (MG.TO). In 2011, Magna represented about 98% of its revenues. It is now down to 31% as at November 2021 (with Amazon as its second-largest tenant with 5% of revenue). Management has transformed this industrial REIT into a well-diversified business without adversely affecting shareholders. GRT now manages 114 properties across 7 countries. The REIT also boasts an investment grade rating of BBB/BAA2 stable.
With a low FFO payout ratio (around 72%), shareholders can enjoy a 3%+ yield that should grow and match or beat the inflation rate. This is among the rare REITs exhibiting AFFO per unit growth while issuing more units to finance growth.
#8 Magna International
MG is a leader in the auto parts industry, and this serves it well since many manufacturers tend to concentrate their processes with fewer suppliers that offer wider product ranges. This is exactly where Magna stands in the market. The company could literally design, develop and build a complete car on its own. While MG relies on Detroit automakers for about 40% of its sales, the overall automobile business is looking brighter.
Magna has also concluded several partnerships with European manufacturers and is involved with many electric vehicle manufacturers. Finally, there is a high switching cost for automakers to change between suppliers like Magna, making its niche a highly repetitive and stable market.
#7 Algonquin Power
Like many utilities in North America, solid growth is to be found outside of the company. AQN had approximately 120K customers in 2013 and now serves over 1M customers and achieved this impressive growth through acquisitions. The company “did it again” with the recent acquisition of Kentucky Power; the transaction is expected to close in Q2 2022 and should add another 165K customers. With a budget of $12.4B in CAPEX, AQN has several projects pending through to 2026. These include more acquisitions, pipeline replacements and organic CAPEX.
The utility counts on its regulated businesses to grow its revenue once those projects are funded. AQN has double-digit earnings growth potential for the foreseeable future but expect a short-term slowdown due to an aggressive leverage strategy and more common shares being issued.
#6 Brookfield Renewable
The future of energy will be found across hydroelectric, solar, and wind power. Approximately 50% of BEP’s portfolio is focused on hydroelectric power. New money is going toward solar and wind projects. The company has power plants across North America, South America, Europe, and Asia. BEP enjoys large scale capital resources and the expertise to manage its projects across the world. Management aims for a 5-9% annual distribution increase. This promise is backed by double-digit guidance that includes a mix of organic and M&A growth.
Investors are gravitating toward clean energy and BEP is well-positioned to attract them. BEP now offers shares under both a REIT and a regular corporate structure. From what we have seen on the market, the C class (BEPC) tends to attract more investors, meaning a stronger price.
#5 Royal Bank
Royal Bank counts on many growth vectors: its insurance, wealth management, and capital markets divisions. These sectors combined now represent over 50% of its revenue. These are also the same segments that helped Royal Bank to stay the course during the pandemic. The company has made significant efforts in diversifying its activities outside of Canada and has a highly diversified revenue stream to offset interest rate headwinds. Canadian banks are protected by federal regulations, but this also limits their growth. Having some operations outside of the country helps RY to reduce risk and improve its growth potential.
The bank posted impressive results for the latest quarters driven by strong volume growth and market share gains which offset the impact of low interest rates. As interest rates are expected to rise in 2022, RY is in good position. Royal Bank exhibits a perfect balance between revenue growth.
#4 Fortis
Fortis invested aggressively over the past few years, resulting in strong and solid growth from its core business. You can expect FTS’s revenues to continue to grow as it continues to expand. Bolstered by its Canadian based businesses, the company has generated sustainable cash flows leading to 4 decades of dividend payments. The company has a five-year capital investment plan of approximately $20 billion for the period of 2022 through 2026.
Only 33% of its CAPEX plan will be financed through debt, while 61% will come from cash from operations. Chances are that most of its acquisitions will happen in the US. We also like the company’s goal of increasing its exposure to renewable energy from 2% of its assets in 2019 to 7% in 2035. The yield isn’t impressive at 3.30%, but there is a price to pay for such a high-quality dividend grower.
#3 Telus
Telus has grown its revenues, earnings, and dividend payouts on a very consistent basis. Telus is very strong in the wireless industry and is now attacking other growth vectors such as the internet and television services. The company has the best customer service in the wireless industry as defined by their low churn rate. It uses its core business to cross-sell its wireline services. The company is particularly strong in Western Canada.
Telus is well-positioned to surf the 5G technology tailwind. Finally, Telus looks at original (and profitable) ways to diversify its business. Telus Health, Telus Agriculture and Telus International (artificial intelligence) (TIXT.TO) are small, but emerging divisions that should lead to more growth going forward.
#2 Alimentation Couche-Tard
In the long-term, dividend payouts should grow in the double digits, and investors should see strong stock price growth. ATD’s potential is directly linked to its capacity to acquire and integrate additional convenience stores. Management has proven its ability to pay the right price and generate synergies for each acquisition.
ATD exhibits a solid combination of the dividend triangle: revenue, EPS, and strong dividend growth. The company counts on multiple organic growth vectors such as Fresh Food Fast, pricing & promotion, assortment, cost optimization and network development.
#1 National Bank
NA has targeted capital markets and wealth management to support its growth. Private Banking 1859 has become a serious player in that arena. The bank even opened private banking branches in Western Canada to capture additional growth. Since NA is heavily concentrated in Quebec, it concluded deals to provide credit to investing and insurance firms under the Power Corp. (POW). The stock has outperformed the Big 5 for the past decade as it has shown strong results.
National Bank has been more flexible and proactive in many growth areas such as capital markets and wealth management. Currently, NA is seeking additional growth vectors by investing in emerging markets such as Cambodia (ABA bank) and in the U.S. through Credigy. We wonder if it can it have more success than BNS on international grounds. It seems like they may have found the right formula to do so! This is one of the rare Canadian stocks having a near-perfect dividend triangle.
How to Buy in Canadian dividend stocks
Since the beginning of the year, most investors lost money. The past 6 months have been quite frustrating for investors and predicting the outcome of this crisis seems impossible. You don’t want to lose more money and you are afraid your retirement dream is slipping away.
No investors should have to roll the dice for their retirement.
First, know that I’m invested 100% in equities all the time. I have been since I first bought my first shares (it was Power Corporation POW.TO) back in 2003. I did not change my approach in 2008, 2018 or 2020 and I certainly won’t today.
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I’m excited for you to get your DSR PRO report, take appropriate actions and secure your portfolio. Making sure you keep only good companies in your portfolio is crucial during volatile markets.
