Canadian banks are amazing; they have outperformed the Canadian stock market for the past 5, 10, 15, probably 25 years. Unfortunately, they were not created equal. That’s a myth. Then, which Canadian Bank is the best?

Since the 2008 financial crisis, each member of the big six (Royal Bank, TD Bank, ScotiaBank, Bank of Montreal, Canadian Imperial Bank of Commerce and National Bank), took a different direction.

They all benefitted from the oligopoly environment in Canada to fund new growth vectors. 14 years later, if you pick the wrong bank, you will be leaving a lot of money on the table.

Let’s take a look at our Canadian Bank Ranking from position 6 to 1.

But first, let’s review their latest quarterly earnings:

#6 ScotiaBank (BNS.TO)

BNS is the most international bank in the Canadian banking industry. It has significantly expanded its business outside of Canada with 40% of its assets outside the Canadian border. This hasn’t always been an advantage as BNS ran into its share of problems with South American economic struggles. The bank reduced its international footprint and has limited it to 30 countries currently, from 54 in 2013. Expected GDP growth for these countries is quite attractive (higher than Canada and the U.S.), but this comes with much uncertainty and volatility. BNS is now a dominant player in Chile with its most recent acquisition of BBVA Chile in 2018. The bank has a strong track record of acquiring and integrating businesses. The most recent quarterly results show an economic recovery across the Pacific Alliance, a lower provision for credit losses, growth in wealth management, but lower income in capital markets.

Pros:

• Best diversified, most international: For over a decade, BNS focused on growing outside Canada (especially in Central America and in South America). Obviously, their Gross domestic product (GDP) growth rate is better than US and Canada. Their perspective moving forward is also better (they should grow at a 3%-4% rate while it will be hard to reach over 1%-2% in Canada and the US).

Cons:

• International exposure brings uncertainties: Before the pandemic, BNS had a great story, but they never capitalized on it, and they never outperformed other banks. Why? It’s complicated to do business in Central America! It took several years and several missed attempts for Canadian banks to enter the US. They made bad acquisitions and failed several times. Look at South America and Central America, you realize it’s a lot more complicated than making loans in the US. It’s even worse with the pandemic as countries with lower resources and weaker healthcare systems will face more problems than in North America.
• Worst performing stock from the top 6 over the past 10 years. With all the difficulties I just mentionned, I’m not expecting them to reverse that trend in the upcoming months and the upcoming years.

#5 Canadian Imperial Bank – CIBC (CM.TO)

While CIBC lags behind the other banks on the stock market (along with ScotiaBank), it gives investors the opportunity to pick up a generous yield without significant risk. We like that they want to grow their wealth management division, but the integration of Private Bank will represent a crucial step. If an investor is looking for additional income, CM is probably one of the best picks on the Canadian stock market; it just can’t be expected to outperform the banking industry over the long run. CIBC is trading at a low PE ratio versus its peers since it has lower growth expectations. On the bright side, the dividend is not at risk, and an investor will enjoy consistent increases. CIBC will likely be a good fit for a retirement portfolio since it offers the stability of a top 5 Canadian bank with a decent yield and the security of future dividend growth. We must add that the bank has done very well in 2021 and its recent results pushed CM’s price to its highest price level in history. Let’s put it this way: it’s hard to perform poorly when you invest in a Canadian bank!

Pros:

• High yield with a relatively low payout ratio: When you do the math, a low stock price brings a higher yield. A low PE ratio also brings a high yield and so the stock price is low…
• Mortgage loans: The mortgage side is doing well as housing market in Canada is doing well. But when your biggest growth vector is mortgages right now, I don’t think it will result in outperforming the other banks.
• Private banking and wealth management: Smart move, but a little late. CIBC is a small player in this ground compared to the others.

Cons:

• Lack of growth vectors: With interest rates super low, interest margin will be squeezed. CIBC’s only way out is to do more loans. That could be a very difficult path in the next years considering the consequences of the pandemic on the economy.

#4 Bank of Montreal – BMO (BMO.TO)

BMO decided to take the stock market path to ensure its growth. It was the first Canadian bank with its own ETF on the market. Competition is fierce but being among the first Canadian issuers surely helped to build momentum in a growing market. Over the years, BMO concentrated on developing its expertise in capital markets, wealth management, and the U.S. market. BMO also made innovative moves such as the introduction of its own ETFs and a robo-advisor. Growth will happen in these markets for banks in the coming years. BMO is well-positioned to surf this tailwind. Keep in mind BMO’s results are often more hectic compared to its peers due to its capital market business segment. The bank has been the less generous in terms of dividend growth between 2010 and 2020. However, it came back strong with the most generous dividend increase in 2021 (more on that in the dividend growth potential section).

Pros:

• Focus on capital markets and wealth management: They were the first in the country to have their own ETF suites. They saw where the market is going, and they took advantage of it. They were also among the first Canadian banks to make a move towards private banking with the acquisition of Harris Bank in Chicago. They’re well established in wealth management and in capital market and I like that.
• Well established in the States.

Cons:

• Revenue and earnings are more volatile: Because of that focus, their revenue and earnings are more volatile or riskier. Their dividend growth perspective versus the other five is lower.

#3 TD Bank (TD.TO)

Over the years, the bank has been increasing its retail focus, driven by lower-risk businesses with stable, consistent earnings. The bank enjoys number one or two market share for most key products in the Canadian retail segment. TD keeps things clean and simple as the bulk of its income comes from personal and commercial banking. It has substantial exposure in major cities like Toronto, Vancouver, Edmonton, and Calgary, combined with a strong presence in the US. With about a third of its business coming from the U.S., TD is the most “American” bank you’ll find in Canada, with roughly 1/3 of its business coming from south of the border. If you are looking for an investment in a straightforward bank, TD should be your pick as increasing retail focus, large market share in Canadian banking, and U.S. expansion are key growth enablers for TD Bank.

Pros:

• Revenues (a third) coming from the US: They really caught up that game from their southern neighbors; they know how they want to deal; they have a great exposure over there.
• Largest amount of assets in Canada.
• Doing things simple but doing them the right way: They have been doing very well for the past 10 years.
• Strong wealth management: Their segment from Ameritrade did very well, and now they’re selling to Charles Schwab.

Cons:

• High exposure to mortgages: Hot markets such as Vancouver and Toronto could cool down a lot at one point in time. If we get into a housing bubble, then it’s going to be harder for TD.

#2 Royal Bank – RBC (RY.TO)

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 and 2023, RY is in good position. Royal Bank exhibits a perfect balance between revenue growth.

Pros:

• Battling with TD to be the largest bank in terms of assets: They’re well established across all of Canada.
• Rouhly 50% of their revenue are coming from classic banking activities: Which means only 50% is subject to the interest rate squeeze.
• The other half is about wealth management, capital market, and insurance: They have been able to do lots of cross-selling across those segments, they are maximizing their presence in the wealth management, and they had a huge deal with BlackRock for ETFs.
• Outperformed the average bank in Canada in terms of market: Recently, they have also shown their strenght in terms of earnings.
• Strong dividend growth policy in place: Don’t expect any dividend increase for the rest of 2020 from any banks. I’m pretty sure Royal Bank (and other Canadian banks too) will wait a little, see how things go, see how their loan book is being affected, and then they may resume in 2021 or 2022. Still, the dividend is safe.

Cons:

• Royal Bank could also get hurt by a bearish housing market: This is a rather small downside considering RY’s strenght and ability to face headwinds.

#1 National Bank (NA.TO)

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 do credit for 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. Recently, NA is seeking additional growth vectors by investing in emerging markets such as Cambodia (ABA bank) and in the U.S. through Credigy. Can it have more success than BNS on international grounds? It looks like they may have found the magical formula to do so!

Pros:

• One of the fastest growing wealth management businesses in the country: They have a very strong brand recognition there. Since they were doing a lot of loans in Western Canada, they actually opened private banking branches there too. Not regular branches where everybody can go, but selling points where private consultants and private bankers could be there for their clients.
• Strong in capital markets: They’re very active on the market. This creates more volatility, as it is the case with BMO, but overall, they’ve been doing well, and they’re making more money.
• International branch and US segment: In the international, they focused on Cambodia. They completed the purchase of ABA Bank over there. They’re trying to create growth outside of Canada, but they’ve selected emerging markets in Asia instead of South America.
• Heavily based in Quebec: In the past, it was a reason to lie a little behind, but over the past 10 years, Quebec has proven its resiliency. They’re not dependent on energy to grow their economy; they have a Canadian economy similar to Ontario. They’re doing well. In the pandemic, Quebec has been hit with a lot of cases, but its economy seems to be on the way to recover faster than the other banks.

Cons:

• International branch and US segment: We’re going to see how it goes. It’s not my favorite part of their business model but I like the fact that they try to diversify.

Final Thoughts

Canadian banks could be compared to the salt you use in your hearty fall soup. Some salt in it is making it tasty and great. Add too much salt and it is totally ruined. Act with the same caution for Canadian banks. Pick one or two, but don’t add too much in your portfolio!

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The world needs energy to function and the best energy companies are rewarding shareholders handsomely this year. The oil & gas industry has been fascinating investors for several decades. I guess this is due to the thrill coming from the next exploration results or an oil boom pushing stocks to record levels.

Where to find the best Oil & Gas Energy Stocks?

First, one must understand the differences across sub-sectors and activity types. The oil & gas industry is usually divided into three activities:

Upstream: This term represents all activities related to exploration and production. This is usually the phase where the commodity price is the most important. Companies will establish their financial projections based on a specific price (or cost) per barrel. Then, they will decide to explore (drill wells) or not depending on the likelihood of profitable operations.

Midstream: Midstream activities include the processing, storing, and transporting of oil & gas and their byproducts. This is where you will find pipeline-related businesses. The transportation and storage activities are usually more stable as they usually operate on long-term contracts with producers.

Downstream: this is the final step of the process including refining (to produce gasoline for example) and marketing the product (selling it to the end-customer). Don’t just think about gasoline, but all the other modified products such as liquefied natural gas, heating oil, synthetic rubber, plastics, lubricants, antifreeze, fertilizers, and pesticides

Sub-Sector (Industry)

Energy Stocks Greatest strengths

Oil & gas stocks will raise passions and attract many investors during bull markets (especially after the boom in 2021). As the economy grows, demand for such products increases accordingly. Commodity prices go up, profits are skyrocketing, and dividends are generous. The problem is that it rarely stays that way.

The energy sector can generate great returns in your portfolio, but you will be required to follow this sector closely (and hopefully know what you are doing). If you can pick stocks during oil busts (as was the case back in March-April 2020), you will show double-digit (sometimes triple digit) returns. Since we do not employ a “buy and sell quickly” strategy, we rarely like energy stocks at DSR. They generally make unreliable dividend growers.

Finally, the energy sector is a great hedge against inflation. Along with other commodities, energy companies can easily pass price increases to their customers as it’s linked to supply vs. demand.

Energy Stocks Greatest Weaknesses

The energy sector is quite volatile and cyclical. This is not the best place to pick dividend growers. Many companies will attract investors with their high yield and generous promises, but they will eventually fail their shareholders. I’ve heard the best and the worst stories coming out of this sector. Therefore, it is crucial to do your homework prior to investing in the Energy sector.

The main problem with this sector is it is capital intensive and profits often depend on commodity prices. Companies have little to no control over the prices they receive for their oil or natural gas. Therefore, they spend billions on projects and hope the end price will remain profitable for several years.

Vertically integrated companies (upstream, midstream, and downstream) tend to maintain their dividend payments no matter what, but it is still a risky business. For example, BP (BP) had to cut its dividend after a major oil spill. Royal Dutch Shell (RDS.A or RDS.B) and Suncor (SU.TO / SU) also cut their distributions following the oil debacle in 2020.

As technology evolves, our demand for energy stagnates while our production capacity improves. In other words, don’t expect natural gas prices to rise anytime soon. All factors are combined to keep them at a low level.

How to get the best of it

The energy sector is the most cyclical of all. If you are courageous enough to ride the roller coaster, you can grab shares at highly depreciated prices every few years. If you would rather stay focused on a dividend growth investing strategy as we do here at DSR, you must be incredibly picky before investing a penny in this sector.

I prefer pipelines (midstream industry) as the most interesting opportunity in the energy sector. Pipelines are capital intensive and exposed to regulators and potential oil spills, but they also act as toll roads. The world needs energy and pipelines are the ones providing it.

This sector is more suitable for a growth investor. If you are retired and looking to enjoy a peaceful retirement, you may want to ignore this sector completely.

Target sector weight: Since this sector doesn’t offer the best dividend growers in town, I’d say that a 5% exposure should be enough (unless you like roller coasters!).

Best Energy Stocks to buy in September 2022

As a part of the hype around energy, stocks has faded, there are some great opportunities in this sector.

Canadian Natural Resources (CNQ.TO)

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. This is also why it’s part of our Canadian Rockstars List!

Dividend Growth Perspective

On top of an impressive dividend growth streak of over 20 years, CNQ has recently shifted gears with highly generous dividend increases (another 28% in 2022!).  CNQ has proven the resiliency of its business model and confirmed its ability to be a strong dividend grower. This is truly impressive. Now that the oil market has strengthened, CNQ should be able to generate healthy cash flows for years to come.

Enbridge (ENB.TO)

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.

Dividend Growth Perspective

The company has been paying dividends for the past 65 years and has 27 consecutive years with an increase. Further dividend growth shouldn’t be as generous as compared to the past 3 years (10%/year). Management aims at distributing 65% of its distributable cash flow, leaving enough room for CAPEX. Look to their latest quarterly presentation for their payout ratio calculation. Management expects distributable cash flow growth of 5-7% annually. Therefore, you can expect a similar dividend growth rate. We have used more conservative numbers in our DDM calculation that are more in line with the 2021 and 2020 dividend increases of 3%. Here’s more about Enbridge’s dividend safety:

Topaz Energy Corp (TPZ.TO)

The company arrived on the market at the perfect moment (2021). Topaz was established through its key counterparty, Tourmaline Oil Corp (TOU.TO), from whom Topaz acquired its formative royalty and energy infrastructure assets in November 2019. Bolstered from this opportunity, Topaz now focuses on growth by acquisition to diversify its business model away from Tourmaline. In 2022, Liquid-rich natural gas royalties (paid by Tourmaline) should represent 50% of Topaz’s revenue. It will also count on conventional liquids royalties (~25%) and revenue coming from its infrastructure (25%). On top of acquisitions, we expect Topaz to exhibit strong organic growth as there are more projects being developed on their land. We appreciate the midstream business infrastructure projects representing 78% of revenues as they are based on take-or-pay contracts. This secures a portion of cash flow and brings more stability to a highly cyclical sector.

Dividend Growth Perspective

Topaz is a new company paying a new dividend and that makes it hard to predict what will happen next. The company has already increased its dividend several times, going from $0.21/share in 2021 to $0.26/share in early 2022, for a 24% total increase in less than 12 months. Free cash flow per share continues to increase by double-digits as Topaz surfs a strong oil & gas market. For 2022, management is confident that it will be able to increase its dividend by 8% while keeping its payout ratio within its target range of 60% to 90%.

TC Energy (TRP.TO)

TRP is making use of large amounts of capital to fuel its growth over the coming years. Its acquisition of the Columbia pipeline and its extension toward Mexico are just two examples of what is to come. The company recently funded $4.5B for its Southeast Gateway Pipeline project to compliment TRP’s existing natural gas footprint in Mexico. It enjoys long-term contracts (of an average of 14 years), which provide great cash flow stability over time. The pipepeline’s growth potential remains in its natural gas pipeline expansion. TRP is a good candidate for long-term investment. As is the case with Enbridge, an investor must make sure to track TRP’s rising debt level. The company has kept its focus on rewarding shareholders with generous dividend increases, and that focus should continue. Unfortunately, management revised its dividend growth policy at the end of 2021; it’s still generous, but it’s not what it used to be!

Dividend Growth Perspective

TRP has successfully increased its dividend annually since 2001. TRP exhibits a 5-year CAGR of 9% but management reviewed its intention to boost its payout by 3-5% CAGR going forward. This news disappointed the market toward the end of 2021. We haven’t changed our DDM calculations as we were already forecasting a 4% dividend growth rate before the announcement. The company’s growth is fueled by its massive investment program. At the current yield, this is a good candidate for a retirement portfolio.

Find Better Stocks on the Canadian market…

There are great stocks to buy in the Energy sector, but there is more on the Canadian market! Moose Markets presents you with the Canadian Dividend Rock Stars list: a selection of Canadian companies showing both income and growth. The Canadian Rock Stars List is a selection of the safest dividend stocks in Canada. Download the list for free here:

DOWNLOAD THE LIST HERE

Canada has produced some of the best tech stocks recently. Over the years, the Canadian technology sector has produced great success stories: Shopify (SHOP.TO) and Lightspeed (LSPD.TO) saw their stock price skyrocketing during the pandemic.

With rising interest rates and the risk of a recession, investors became concerned about the lack of profit, and the entire sector plummeted in 2022. This year alone, Shopify lost more than 70% of its value, and Lightspeed isn’t far behind, with 50% of its value lost since January.  Let’s just say they are a little less stable than Canadian REITs 😉

Is there hope for Canadian tech stocks? There are several excellent companies in this sector, and we will discuss the best opportunities at the end of this article.

But first, why would you invest in Canadian tech stocks anyway?

Why Canadian Tech Stocks? Which ones are the Best?

There are dozens of giant American technology companies, such as Apple, Microsoft, and Alphabet (Google). Can you name one Canadian tech companies that can compete with the best?

Out of the 41 tech companies in Canada, there are only 6 of them with a market capitalization above $10 billion:

• Shopify Inc: $61B.
• Constellation Software Inc: $46B.
• CGI Inc: $26.5B.
• Open Text Corp: $13.7B.
• Ceridian HCM Holding Inc: $13.4B.
• TELUS International (Cda) Inc: $10.6B.

Investing in small capitalizations will add volatility to your portfolio. However, it also improves your chances of finding a stock that could show triple-digit returns. Over the past 3 years, we count 8 companies showing more than 100% total returns:

• Converge Technology Solutions Corp: 619.6%
• Maxar Technologies Inc: 309.9%
• Tecsys Inc: 192.2%
• MediaValet Inc: 182.2%
• Sierra Wireless Inc: 175.1%
• Vecima Networks Inc: 114.2%
• Kinaxis Inc: 110.1%
• The Descartes Systems Group Inc: 103.1%

Now that this sector dropped significantly in 2022, it’s time to look for some bargains!

Top 4 Canadian Tech Stocks for September 2022

We have gone through the entire list of tech stocks in Canada to find the best companies (you can find the complete list at the end of this article). To identify our top 4, we considered their business model, growth vectors, and ability to generate recurring revenue. Here are the best Canadian Tech Stocks for September 2022 in no particular order.

Sylogist (SYZ.TO)

Yield: 6.90%

Market Cap: $178M

Industry: Software Application

Sylogist Ltd. is a software company that provides enterprise resource planning (ERP) solutions, including fund accounting, grant management and payroll to public service organizations. The Company operates through Public Sector segment.

Investment Thesis

Who doesn’t like a company offering overall improvements in business processes, quality, and systems control through their services? Sylogist exhibits a strong model of growth by acquisition and has almost no debt! It also offers a surprisingly strong yield for a small high-tech stock. Through their Enterprise Resource Planning (ERP) solutions, SYZ can help both public and private companies manage their intellectual property. Knowing how to manage data is crucial for businesses, so SYZ is at the right place at the right time. We like their customer diversification and their appetite for making acquisitions, coming from their new CEO. One of the major downsides of a company like this is that small caps can be quite volatile on the market. For that reason, investors should proceed with caution, or buy the stock and forget about the transaction for a while. Please note that EPS has been affected by a one-time executive compensation change in 2020 and 2021.

Constellation Software (CSU.TO)

Yield: 0.24%

Market Cap: $44.9M

Industry: Software Application

Constellation Software Inc is a Canada-based company that develops and customizes software for public- and private-sector markets. The firm acquires, manages, and builds vertical-specific businesses. Its operations are organized in two segments: Public Sector and Private Sector. The portfolio companies serve various markets including communications, credit unions, beverage distribution, tour operators, auto clubs, textiles and apparel, hospitality, and community care. The firm has operations in North America, Europe, Australia, South America, and Africa.

Investment Thesis

You won’t buy CSU for its yield, but you will buy this strong Canadian tech stock for its growth potential. Constellation Software has developed a unique growth by acquisition strategy. The company focuses on acquiring small niche tech companies or companies in the vertical market software industry. They now operate hundreds of companies in a decentralized way. Constellation is the ultimate growth machine!

Telus International (TIXT.TO)

Yield: 0%

Market Cap: $10.6M

Industry: Software Infrastructure

TELUS International (Cda) Inc is a digital customer experience innovator that designs, builds, and delivers next-generation solutions. Its clients include companies across several verticals, including Tech and Games, Communications and Media, eCommerce and FinTech, Healthcare and Travel and Hospitality. The solutions offered by the company include Digital Experience, Customer Experience, Advisory services, and Back Office and Automation among other services. Geographically, it derives a majority of revenue from the Philippines.

Investment Thesis

TELUS International is a spin-off company from Telus, the wireless company. Its focus on new technology and artificial intelligence opens the doors to a lot of growth in the future. We like TIXT’s geographic and service diversification. Being present in so many industries worldwide ensures a more stable business model. Revenues are expected to grow double-digit in the coming years.

Tecsys (TCS.TO)

Yield: 0.77%

Market Cap: $520.3M

Industry: Software Application

Tecsys Inc is engaged in the development and sale of enterprise supply chain management software for distribution, warehousing, transportation logistics, point-of-use and order management. It also provides related consulting, education and support services. The company serves healthcare systems, services parts, third-party logistics, retail and general wholesale distribution industries. Geographically, it derives a majority of revenue from the United States and also has a presence in Canada and Other Countries. Its only operating segment being the development and marketing of enterprise-wide distribution software and related services.

Investment Thesis

This small cap has much capital gain potential but a prospective investor should brace themselves for a roller coaster ride. TCS offers crucial supply chain management software for any ecommerce business. Considering delivery fees and the fierce competition in the retail world, optimizing the supply chain is a key element for any business shipping goods. Tecsys also helps large customers with complex distribution centers or in the healthcare business. With an only 15% market share of the healthcare market, there would appear to be much potential growth in that market. With over 1,000 customers and about half of their revenue coming from recurring contracts, TCS is building a strong foundation for its future growth. We like how annual recurring revenue (ARR) grows constantly and how TCS uses cross-selling techniques to obtain a net retention rate above 100% year after year.

There are better opportunities on the Canadian market…

There are great stocks to buy in the tech sector, but there is more on the Canadian market! Moose Markets presents you with the Canadian Dividend Rock Stars list: a selection of Canadian companies showing both income and growth. The Canadian Rock Stars List is a selection of the safest dividend stocks in Canada. Download the list for free here:

DOWNLOAD THE LIST HERE

The Complete list of Canadian Tech Stocks

If you are really curious, we have made a list of all tech stocks trading on the TSX. We have taken down the Canadian tech stocks with a market cap under $100M to make your research easier.

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:

#14 Canadian Net REIT

#13 Emera

#12 Canadian National Resources

#11 Canadian National Railway

#10 Enbridge

#9 Granite REIT

#8 Magna International

#7 Algonquin Power

#6 Brookfield Renewable

#5 Royal Bank

#4 Fortis

#3 Telus

#2 Alimentation Couche-Tard

#1 National Bank 

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

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The Canadian Rock Stars List is a selection of the safest dividend stocks in Canada. Which Canadian dividend stocks are the best? Those with the highest yield? Or those with the strongest dividend growth? Moose Markets presents you with the Canadian Dividend Rock Stars list: a selection of Canadian companies showing both income and growth. You guessed it; we prefer a combination of dividend growth and dividend yield. Here’s why…

DOWNLOAD THE LIST HERE

Dividend Growth Investing = Safe Investing with More Money, Less Stress

“When you have confidence, you can have a lot of fun. And when you have fun, you can do amazing things.”

~Joe Namath

My entire portfolio is invested in dividend growth stocks. Some holdings act as “fixed income” as they offer a stable dividend yield and can weather market storms. Some others are my “growth equity” as they offer lower yield, but strong dividend growth and stock price appreciation potential. The combination of various dividend growers will create a balance where your portfolio will help you retire stress-free.

Strangely enough, even Vanguard (a pioneer in ETF investing) conducted its own studies on the recent market history and concluded that dividend growers are among the best-performing assets.

Source: Vanguard

According to Vanguard’s study over this 20-year period, dividend growth stocks not only beat the market, but they did it with less volatility. While dividend growers usually provide investors with less volatility, you will still go through challenging periods where your favorite holdings will show red numbers. This is where you may start losing confidence and start wondering if it would be appropriate to cash your profits and protect your capital.

GET THE LIST

How the Canadian Rock Stars List Has been Built?

This Canadian dividend stocks list has been created with the help of our investment membership; Dividend Stocks Rock. When we left in our small RV to drive down to Costa Rica, we lived the adventure of a lifetime. It was a wonderful experience because we had a clear strategy. We knew where we were going, why we were doing it and we even had ways to handle more difficult days. The market will keep throwing you curveballs, so let’s make sure you don’t whiff on them.

At Dividend Stocks Rock, we also have a clear strategy: we focus on dividend growth stocks. We handpick companies showing a strong dividend triangle (e.g. revenue, earnings, and dividend growth potential) and make sure we understand their business model. It is sometimes frustrating to follow such a clear, but strict strategy. We sometimes must ignore great investing opportunities because they don’t fit in our model. Since our model is quite easy to understand and we know why we are using it, we never doubt ourselves.

We have created the Canadian Rock Stars list based on the combination of three metrics creating the dividend triangle. It’s a stronger list compared to the dividend aristocrats as we combine various metrics on top of dividend growth. By filtering the market to find Canadian stocks showing growing sales, growing earnings and growing dividends, we are convinced we can pick among the best Canadian dividend stocks, period.

Download the list

The Dividend Triangle is key to identifying safe Canadian stocks

With a smart combination of three metrics, you’ll be able to pick the best stocks from our list. You can quickly identify safe investments using the dividend triangle:

Revenues:

A business is not a business without revenues. What is the difference between a company with growing revenues versus a company showing stagnating results? We are looking for companies with several growth vectors that will ensure consistent sales increases year after year. I’m a big believer in “offense is the best defense”. Whenever we are about to face a recession, I want to make sure I have companies that have shown past revenue growth. This is an excellent indicator that their business model is doing well, and they won’t enter a recession in a position of weakness.

Earnings:

You cannot pay dividends if you don’t earn money. Then again, this is a very simple statement. Still, if earnings don’t grow strongly, there is no point of thinking that the dividend payment will increase indefinitely. Keep in mind that the EPS is based on a GAAP calculation. This is what makes EPS imperfect, as accounting principles are not aligned with cash flow. This means you are better off looking at the EPS trend over 3, 5, and 10 years. Use an adjusted EPS that discounts those one-time events revealed by the company to have a clear view of what is happening. Some companies could “play around” with earnings for a year or two, but you can’t create a trend out of thin air.

Dividends:

Finally, dividend payments are the *obvious* backbone of any dividend growth investing strategy. But I don’t focus on the real dollar amounts or the yields because our real focus is solely on dividend growth. Dividend growers show confidence in their business model. This is a statement claiming that the company has enough money to both grow their business and reward shareholders at the same time. This also tells you that the business can pay off its financial obligations and invest in new projects (CAPEX). No management team will increase their dividend if they lack the cash to run their business.

What does a Strong Dividend Triangle Look Like?

It’s one thing to put those metrics into a stock screener, but it’s another to know what to do with them. The problem I face with a simple stock screener is that it will give me the 3year or 5year annualized growth, but I can’t see the trend.

Once I identify a company with a strong dividend triangle, my second step will be to look at the trend over the past 5 years for each metric. This period is long enough to show the current trend and highlight some jumps or drops that I must investigate. For example, I’ve pulled the dividend triangle of one my favorite stocks: National Bank:

As you can see, revenue, earnings, and dividend follow a similar trend. There was a decrease in earnings during the pandemic which led to a pause (forced by regulators) of dividend growth. Now that the pandemic is behind us, National Bank is back on the Rock Stars list with a strong dividend growth potential.

Canadian Rock Stars List

Canadian Dividend Stock List Metrics

The Canadian Dividend Rock Stars list is comprised of only Canadian stocks that show a minimum revenue and earnings growth of 1% for the past five years. We could have asked for higher requirements, but considering the pandemic, we wanted to make sure we capture all dividend growers that deserve to be a Rock Star. While we didn’t include a minimum yield (dividend yield on this list goes from 0.29% all the way up to 15%), we required a minimum dividend growth rate of 5%. As you know, dividend growth = more money and less stress.

Building a list with only three metrics would not give you enough information for your research. For this reason, the Canadian Dividend Rock Stars list includes around 40 financial metrics. You can then use the filter you want to identify the perfect Canadian stock for your portfolio. The Rock Stars list also includes some of Refinitiv Starmine scores:

StarMine Credit Score

The current regional 1-100 percentile rank of a company’s 1-year default probability is based on the StarMine Combined Credit Risk Model. The Combined Model blends the Structural, SmartRatios, and Text Mining Credit Risk models into one final estimate of credit risk at the company level. Higher scores indicate companies that are less likely to go bankrupt, or default on their debt obligations, within the next 1-year period.

The combined credit score includes metrics from three different models:

• Structural: Structural leverage, asset volatility, and asset drift.
• SmartRatios: profitability, leverage, coverage, liquidity, and growth & stability
• Text mining: transcripts, Reuters news, filings, research

As you can see, the credit score is a combination of the business finance structure, ratios, and how artificial intelligence analyzes the company’s news and transcripts. Pretty powerful metrics!

StarMine ESG Score

Refinitiv ESG Combined Score is an overall company score based on the reported information in the Environmental, Social, and Corporate Governance pillars (ESG Score) with an ESG Controversies overlay. The ESG score you find in the stock screener shows the combined scoring of the four factors mentioned above. Here is an example of how 3M (MMM) Controversies score has fallen because of their lawsuits in 2018-2019:

This scoring gives you a particularly good idea if the company is a good corporate citizen. Since MMM has a good reputation overall besides those legal incidents, the overall ESG score is positive:

The score you will find in the stock screener is rated from 1 (worst) to 100 (best).

StarMine Value Score

The current regional 1-100 percentile rank of the security is the overall Relative Value Model. Higher scores indicate stocks with the best value when considering all Relative Value model components that are relevant for the stock.

The relative valuation model will use a combination of 6 valuation metrics:

• EV/Sales
• EV/EBITDA
• P/E
• Price/Cash Flow
• Price/Book
• Dividend Yield

Download the Canadian Dividend Rock Stars List

This Canadian dividend stocks list will be updated quarterly. By subscribing to our newsletter, you will receive the updated version of the Rock Stars list quarterly.

You can download the list here.

Happy stock research!