As we update our list of the Best Canadian Dividend Stocks for July 2023, we continue to focus on four key areas:
- Dividend Yield
- Dividend Growth Consistency
- Earnings Per Share
- Overall Company Revenues
After the first quarter of the year, we have witnessed many of the established markets throughout the globe take off quickly before crashing back to earth.While many stock market gurus contend that global economic weakness is already “baked in” as a result of the underwhelming performance of stocks in 2022, many analysts are anticipating an impending recession as recent bank crises lead liquidity to dry up.
For now, it seems that traders are betting on a sideways market.In light of the uncertainties, I continue to be really delighted to have money invested in Canadian dividend companies because of their security and consistent cash flow.
Our #1 pick for the year – National Bank – is up 10.20%.
Given its 4% dividend, this makes it the best-performing bank of 2023 and a significant outperformer of the overall TSX index.We continue to be optimistic about the bank’s medium- and long-term prospects.Imagine what will happen as the underlying economy grows stronger if it can still post these kinds of gains despite all the terrible banking news.
Although Canadian energy dividend stocks could have ranked higher on this list, we believe that our mid-stream options have benefited from the increase in energy prices. Canadian bank stocks, utility companies, and telecoms equities have all performed admirably, as we had expected.
As a seasoned dividend investor (I’ve been using the Smith Manoeuvre for over 15 years and have a Canadian dividend investing portfolio), I’ve discovered that while the current dividend yield is lovely, it’s the long-term dividend growth and earnings per share (EPS) that will ultimately determine your portfolio’s returns.
The list below includes my personal picks for the best dividend companies to buy for the long run.
OUR TOP 10 CANADIAN DIVIDEND STOCKS (APRIL 2023 UPDATED)
Here are the top 10 Canadian long-term dividend stocks, listed according to the length of time since their last dividend raise.
Check out the platform that I personally use to conduct my dividend stock research for my complete 32-stock list of Canadian dividend earners that I’m purchasing today as well as the 74-stock list of US Dividend all stars that I suggest.
Note: This article’s data is not updated on a regular basis. Read our advice below if you’re looking for real-time information and direction.
UP TO DATE DIVIDEND STOCK DATA & PICKS
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2023 Canadian Dividend Update
While the Ukraine conflict and the possibility of higher interest rates continue to encourage caution worldwide, it appears that China’s opening up and declining inflation indices have given the market some new life.
Nevertheless, a lot of macroeconomic trends are currently impossible to predict. The valuations of tech companies could continue to decline the greatest in 2023 as it now seems that interest rates will stay “higher for longer”. You only need to look at the dividend growth records of the companies below to realise that these corporate behemoths will continue to find a way to protect profit margins and reward shareholders, despite the fact that some investors may be tempted to move away from dividend stocks and towards more fixed income products.
Following the recent slew of unfavourable banking stories, I now adore the value of Canadian bank stocks even more.There are simply a lot of investors out there who are very terrified by media businesses that prey on your anxiety in order to persuade you to watch more of their nonstop business television programming.
I don’t see any significant weaknesses in the banks, and since they are aggressively expanding into the US, I believe there will be plenty of opportunities to acquire US mid-size banks in the future at lower multiples.
All six of Canada’s main banks continue to benefit from a favourable interest rate differential between their lending and deposits, and they now seem to be doing a respectable job of managing operating costs in light of the inflationary climate.Although I prefer National Bank, I believe TD is currently very attractively positioned as well, with the caveat that careful consideration must be given to their impending US acquisition.
Whether there is a “hard landing” or a “soft landing,” I am certain that I will be able to ignore the commotion and concentrate on the stocks’ history of long-term safety.
We continue to be adamant that there are no better options for investors looking for reliable long-term growth along with free cash flow, given payout ratios like the ones above and those incredibly outstanding Earnings Per Share numbers. The brief video that follows explains why we have such high confidence in Canadian banks at these valuations in April 2023.
We see more than ever that businesses with strong balance sheets and oligopoly-driven moat equities are the wise long-term option as fears of inflation increasingly dominate the media news cycle. Historically, businesses that can pass along the cost increases brought on by inflation have done better during inflation cycles.
To be quite honest, I believe that all of this talk about inflation may be a bit exaggerated and that, by the end of 2023, it will probably fall to a range of 3-3.5%. In the larger scheme of things, it’s really only a minor problem at that rate. If we were talking about deflation, I’d be a lot more concerned!
The companies we think are best positioned to pass on the upcoming 2023 price rises and cost increases are detailed in our list of the top Canadian inflation equities.
Of course, we continue to be dedicated to our long-term approach of allocating our individual dividend nest fund while balancing EPS with a company’s capacity to increase its dividend.
After all, a considerably greater (and rising) dividend yield tomorrow would be the only thing better than a high dividend yield today!
For more information on why we believe in Dividend Stocks Rock so strongly and for specifics on our special discount code, see our comprehensive review of the service here: MDJ33
Rogers, Bell, Telus Updates
We evidently love the Canadian telecoms industry because Telus (T) is listed in our Top 10 Canadian Dividend Growth Stocks chart.Given that Rogers (RCI) recently completed the acquisition of Shaw, the odds are now even more in favour of this oligopoly.
Telus, Bell, and Rogers, three big telecom firms, control a monopoly in the highly lucrative Canadian market.Although none of the three businesses are known for having ambitious growth strategies, Canada’s population growth as a whole should guarantee steady growth for the foreseeable future.
These extremely reliable businesses are mainstays of the Canada dividend stock list for a reason.Telus has gained 9.12% so far in 2023, and with a dividend yield of almost 5%, we’re glad to have chosen it as one of the Dogs of the TSX for the year.
My Top Canadian Dividend Stock Recommendations
Sorted in order of dividend streak:
Fortis (FTS.TO) – 49 Years of Dividend Growth
- 3.97% Dividend Yield
- 5.87% 5 Year Revenue Growth
- 5.96% 5 Year Dividend Growth
- 79.32% Payout Ratio
- 19.32 P/E
Investment Thesis:
Since Fortis has made significant investments, its main business has grown strongly and steadily. Investors might anticipate that FTS’s revenues will increase as it continues to grow.
The company has generated steady cash flows because to the support of its Canadian-based operations, which have enabled it to pay dividends for almost 50 years. The business has a five-year capital investment plan that will cost around $20 billion from 2022 to 2026. Debt will only cover 33% of its CAPEX plan, while cash from operations will cover 61% of it.
Most likely, the US will see the majority of its purchases (which I currently support). The company’s objective to increase its exposure to renewable energy from 2% of its assets in 2019 to 7% in 2035 is another one we like. At the current price, the recent market slump presents a fantastic entry point.
Dividend Growth Perspective:
For the past five years, management has routinely boosted the dividend by 6%, and it has stated that it intends to continue doing so until 2025. We appreciate it when businesses demonstrate a desire for expansion through acquisitions while also rewarding shareholders.
Fortis, after all, is one of the select few Canadian businesses that can boast of continuously raising their dividend for 49 years. A fantastic illustration of a “sleep well at night (SWAN)” stock is Fortis.
Enbridge (ENB.TO) – 27 Years of Dividend Increases
- 7.21% Dividend Yield
- 3.74% 5 Year Revenue Growth
- 7.35% 5 Year Dividend Growth
- 271.26% Payout Ratio
- 41.75 P/E
Investment Thesis:
Customers of ENB enter into take-or-pay transportation contracts lasting 20–25 years. This implies that ENB makes money no matter what happens to commodities prices. Due to the fact that ENB’s Mainline covers 70% of Canada’s pipeline network, the Canadian Oil Sands are likewise well-positioned to benefit the company.
The demand for ENB’s pipelines increases along with production.
Following the merger with Spectra, the transportation of natural gas now accounts for around one-third of its revenue. There are a few projects that Enbridge is considering or developing. The Keystone XL pipeline’s demise (TC Energy) increases demand for ENB’s liquid pipelines.
Thanks to their investments in renewable energy, ENB now has a “greener” focus. Let’s see if they continue to run their new initiatives like they have in the past when they had green assets. The stock is a solid contender for any retirement portfolio because it has a yield of over 6%.
Dividend Growth Perspective:
The business has increased dividends for 27 straight years and has been paying them for the past 65 years. Around 3% more dividend growth is anticipated going forward. To allow for CAPEX, management expects to distribute 65% of its distributable cash flow.
For their payout ratio computation, consult their most recent quarterly presentation. The management anticipates a 5-7% annual increase in distributable cash flow. In our DDM calculation, we have utilised more cautious numbers that are more in line with the 3% dividend increases for 2020–2022.
Canadian National Railway (CNR.TO) – 27 Years of Dividend Increases
- 1.97% Dividend Yield
- 5.58% 5 Year Revenue Growth
- 12.17% 5 Year Dividend Growth
- 39.16% Payout Ratio
- 20.19 P/E
Investment Thesis:
For many years, CNR has been regarded as having the “best-in-class” operating ratios. CNR has consistently tried to increase its margins and was a pioneer in this area. Today, railroads are all managed in the same manner as their peers have caught up. CNR also owns railway assets of unrivalled quality.
Since railroads are practically impossible to duplicate, it has a very strong economic moat, and we may anticipate growing cash flows every year. Additionally, there isn’t a more effective way to move goods than by train.
The advantage of CNR is that investors may always wait for a market downturn before investing. Since humans view railroads as desirable investments, we frequently have an innate ability to anticipate favourable circumstances.
Last but not least, the Keystone XL pipeline cancellation will increase demand for oil transportation by railroads, which has benefited CNR. We should expect to see increased growth as a result of the challenges facing management.
Perspective on Dividend Growth:
Maintenance on railroads requires a lot of capital and could have a negative impact on CNR. Finding a balance between an effective operating ratio and properly maintained railroads is challenging. To keep its network in tact, consistent (and significant) reinvestments are necessary.
CNR, however, still has one of the finest operating ratios in the sector. Since CNR’s growth is dependent on Canadian resource markets, this could occasionally happen. Naturally, demand for CNR’s services will decrease when there is less demand for grain, wood, or oil goods.
During the past few years, we have witnessed how rapidly the winds may change. For instance, during the summer of 2020, the pandemic led to a weekly decline in rail traffic of around 10%. Trucking competes with railroads for certain business when the price of oil is low. Since railroads can’t be moved, CNR is a captive of its best resources!
Canadian National Resources (CNQ.TO) – 22 Years of Dividend Increases
- 4.83% Dividend Yield
- 21.95% 5 Year Revenue Growth
- 23.03% 5 Year Dividend Growth
- 47.32% Payout Ratio
- 8.80 P/E
Investment Thesis:
In a world where the price of West Texas Intermediate (WTI) is $75 or more per barrel (here’s your cue: WTI has been trading above $70 lately! ), CNQ is an excellent investment. With a WTI price of $35, it breaks even and has a substantial undeveloped oilsands reserve.
The strange turn oil has taken and the negative effects oilsands have on the environment have dimmed our enthusiasm. For many countries, producing sustainable energy and electric automobiles are top goals. This can delay down CNQ’s long-term objectives.
However, CNQ is ideally located to benefit from any oil booms. The stock price has climbed by a factor of more than two since the autumn of 2020. It currently generates higher free cash flow as a result of prior, considerable capital expenditures.
CNQ should receive a star in 2020 for their perseverance! If you’re searching for a long-term play in the oil and gas industry, CNQ is at the top of our list at DSR.
Dividend Growth Perspective:
On top of an excellent 20-year dividend growth run, CNQ has just shifted course with extraordinarily generous dividend increases (28% at the start of 2022, a special dividend, and then another raise of 13% in late 2022!).
The perseverance of CNQ’s business plan has been proven, as has the strength of its dividend-growth potential. This is very incredible. Because of the improved stability of the oil market, CNQ should continue to generate wholesome cash flows for many years to come.
Telus (T.TO) – 19 Years of Dividend Increases
- 5.62% Dividend Yield
- 6.57% 5 Year Revenue Growth
- 6.60% 5 Year Dividend Growth
- 117.59% Payout Ratio
- 25.23 P/E
Investment Thesis:
Telus has consistently increased its sales, profits, and dividend payments. Telus is a leader in the wireless sector and is currently pursuing opportunities in new growth markets like internet and television services.
According to their low churn rate, the company offers the greatest customer service in the cellular sector. It cross-sells its wireline services using its core business.
Western Canada is a key region for the business. Telus is in a good position to ride the 5G technology wave. Last but not least, Telus seeks out novel (and lucrative) ways to diversify its company. The tiny but developing businesses of Telus Health, Telus Agriculture, and Telus International (artificial intelligence) (TIXT.TO) should spur more expansion in the future.
Perspective on Dividend Growth:
The best dividend payer in the sector is by far this Canadian Aristocrat. Telus has a high cash payout ratio because it invests more money and makes more capital purchases.
Due to their enormous investment in broadband infrastructure and network expansion, capital expenditures often consume sizeable sums of money. These investments are essential in this industry. Telus now uses finance to close the cash flow shortfall.
At the same time, Telus keeps upping its dividend twice year, a sign of the company’s management’s high level of confidence. Every year, a mid-single digit increase is to be anticipated.
Intact Financial (IFC.TO) – 18 Years of Dividend Increases
- 2.17% Dividend Yield
- 17.70% 5 Year Revenue Growth
- 9.34% 5 Year Dividend Growth
- 29.70% Payout Ratio
- 15.86 P/E
Investment Thesis:
IFC is one of Canada’s top-performing P&C insurance providers. IFC has established its worth to investors over time through a stringent underwriting procedure and meticulous portfolio management.
IFC benefits from a lot of data to enhance its underwriting because of its size. Additionally, it enables IFC to join more lucrative specialised insurance markets that are smaller.
There are many chances for expansion in the next years without any significant risks to the IFC business model because the Canadian insurance market is extremely fragmented. The purchase of OneBeacon strengthened IFC’s ability to underwrite insurance for smaller businesses and provided access to the U.S. market. Intact repeated the feat by purchasing RSA insurance for $1.25 billion in late 2020.
Perspective on Dividend Growth:
IFC has boosted its payouts by 8% CAGR (annualised rate) during the last five years. To ensure future growth, the corporation is highly conservative with dividend increases and keeps a low payout ratio.
Although the company only offers a meagre 2% yield, we are nevertheless very optimistic about the future and anticipate long-term dividend growth in the high single digits.
IFC announced a share buyback programme and boosted its dividend by 20.5% (from $0.83 to $1.00/share) in 2022. This demonstrates that the most recent purchases were successful and that management has faith in the future.
Emera (EMA.TO) – 16 Years of Dividend Increases
- 5.06% Dividend Yield
- 4.04% 5 Year Revenue Growth
- 4.66% 5 Year Dividend Growth
- 75.03% Payout Ratio
- 12.93 P/E
Investment Thesis:
With a strong core business that has been built on both sides of the border, Emera is an intriguing utility. EMA will bring in roughly $6 billion in annual revenues and currently has assets of $32 billion. It has a strong presence in Florida, Nova Scotia, and four Caribbean nations.
This utility is relying on a number of green initiatives that include solar and hydroelectric power plants. Management anticipates investing $8.4 to $9.4B in new projects between 2022 and 2025 to spur more development. As the world gradually transitions to greener energy sources, these expenditures reduce the risk that upcoming rules will have an impact on its operations.
Since Emera is already well-established in Florida, the majority of its CAPEX plan (about 70%) will be implemented there. Florida generally provides a very positive regulatory climate, thus EMA shouldn’t have any issues boosting rates. This investment will help you “sleep well at night” (SWAN).
Perspective on Dividend Growth:
For more than ten years, Emera has increased its dividend payouts annually. Energy management wants to carry on this legacy after buying TECO. The corporation aims for a payout ratio of between 70 and 75 percent and projects a 4- to 5-percent dividend growth rate until 2025.
With a dividend yield of 4% or above, this is a long-term investment. The adjusted profits show a payout ratio of about 80%, including recent dividend growth, so don’t be fooled by the high payout ratio. This kind of business would be ideal for a retirement portfolio.
National Bank (NA.TO) – 13 Years of Dividend Growth
- 4.12% Dividend Yield
- 7.93% 5 Year Revenue Growth
- 9.44% 5 Year Dividend Growth
- 36.80% Payout Ratio
- 10.65 P/E
Investment Thesis:
My personal #1 pick for 2023!
To assist its expansion, NA has focused on the capital markets and wealth management. In that market, Private Banking 1859 has established itself as a major participant. To catch additional growth, the bank even launched private banking offices in Western Canada.
Since NA has a significant presence in Quebec, it reached agreements to extend credit to investment and insurance companies that fall under the Power Corp. (POW). For the previous ten years, the stock has outperformed the Big 5 due to its impressive performance.
In many emerging sectors, including capital markets and wealth management, National Bank has demonstrated greater adaptability and initiative. Currently, NA is investing in emerging markets including the US through Credigy and Cambodia (ABA bank) to find new growth opportunities.
We question whether it will succeed internationally more than BNS. They appear to have discovered the ideal method for doing so! One of the few Canadian stocks with a nearly ideal dividend triangle is this one.
Perspective on Dividend Growth:
The economy of Quebec continues to be very dependent on National Bank. NA is more susceptible to regional economic shocks because it is a hyper-regional bank. Although the bank has not yet been seriously impacted, we advise keeping an eye on its provisions for credit losses.
The debt portfolio of the bank could potentially be impacted by recessions and rising interest rates. Revenues in the capital markets are likewise very erratic. If the stock market turns down, NA can have a disastrous quarter.
Although the bank has done quite well overall, finding expansion vectors (like the ABA bank investment and capital markets) typically involves taking on a little bit more risk. Although it has so far paid off, this does not guarantee that things will continue to go well. Remember that investments like the one in Cambodia can change quickly and without warning.
Alimentation Couche-Tard (ATD.B.TO) – 13 Years of Dividend Growth
- 0.83% Dividend Yield
- 9.55% 5 Year Revenue Growth
- 18.74% 5 Year Dividend Growth
- 12.30% Payout Ratio
- 16.76 P/E
Investment Thesis:
Long-term stock price growth should be robust and dividend payout growth should increase by double digits. The potential of ATD is strongly related to its ability to add more convenience stores and integrate them.For each purchase, management has demonstrated its capacity to pay the appropriate price and produce synergies. The dividend triangle is well-represented by ATD, which combines revenue, EPS, and rapid dividend growth.
The business relies on a number of natural growth vectors, including Fresh Food Fast, price and promotion, assortment, cost optimisation, and network expansion. Additionally, it has shown that it foresaw the switch to electric vehicles and is prepared to benefit from that business model as well.
Perspective on Dividend Growth:
Long-term stock price growth should be robust and dividend payout growth should increase by double digits.
The potential of ATD is strongly related to its ability to add more convenience stores and integrate them. For each purchase, management has demonstrated its capacity to pay the appropriate price and produce synergies. The dividend triangle is well-represented by ATD, which combines revenue, EPS, and rapid dividend growth.
The business relies on a number of natural growth vectors, including Fresh Food Fast, price and promotion, assortment, cost optimisation, and network expansion.
Royal Bank (RY.TO) – 12 Years of Dividend Increases
- 4.26% Dividend Yield
- 3.98% 5 Year Revenue Growth
- 7.34% 5 Year Dividend Growth
- 44.68% Payout Ratio
- 12.52 P/E
Investment Thesis:
The insurance, wealth management, and capital markets businesses of Royal Bank are among the company’s various growth engines.
Together, these industries now account for more than 50% of company revenue. The same elements also assisted Royal Bank in continuing operations throughout the pandemic.
The company has worked very hard to spread its operations outside of Canada and has a very diversified revenue stream to counteract the effects of rising interest rates. Federal rules shield Canadian banks, but they also restrict their ability to expand. Reducing risk and increasing growth potential are two benefits of some operations being conducted abroad.
The bank successfully managed higher provisions for credit losses and reported outstanding profitability for the most recent quarters, driven by robust volume growth. 2022 saw an increase in interest rates, but RY kept a strong position. Revenue and growth are perfectly balanced at Royal Bank.
Perspective on Dividend Growth:
In the past, Royal Bank has twice a year boosted its dividend. An investor can typically anticipate two low-single-digit dividend increases each year. In 2012, the bank resumed its double-digit dividend growth hikes after pausing its dividend growth programme between 2008 and 2010.
All bank dividend hikes were placed on hold by regulators in 2020; they were then reinstated in late 2021. Royal Bank chose to enhance its dividend generously by $0.12 per share, or 11%. The corporation resumed its tradition of increasing its dividend twice a year in 2022. Future dividend increases are anticipated to be in the mid-single digits (e.g., twice-yearly increments of between 2% and 3%).
Canadian Dividend Stocks with 10 Years of Dividend Increases
Intense change and upheaval have been present in recent years. We have had to examine each company in our portfolio and their business model as a result of the COVID-19 pandemic.
Concerns about inflation have now been added to the depressing headlines.
The 38 Dividend Growth Stocks in Canada
(Dividend Increases for at Least Ten Years)
To view all of the latest entries to the previous list of the best Canadian stocks, click here. The following have been specifically chosen for their potential to survive the current economic crisis and prosper moving forward.
Dividend Investing in Canada – Frequently Asked Questions
“How do dividend stocks work?”
Dividends, to put it simply, are the payments that companies provide to their shareholders after expenses for a certain time period have been covered. Some businesses issue annual dividends, although the majority distribute money “quarterly” (every three months).
The majority of companies with a high dividend payout ratio—certainly every Canadian dividend company on the list above—announce their dividend plans for the following year before dividing their after-tax profit between payouts and retained earnings.Dividends are merely handed to shareholders, whereas retained earnings are somehow reinvested back into the business.
No legislation requires that companies pay out a specific percentage of profits or anything similar; instead, they are free to “slash” or reduce their dividend anytime they see fit.Therefore, there is frequently a focus on long-term dividend growth equities that have a track record of rewarding shareholders by not just paying out dividends but also raising them over time.
“How is a dividend being paid?”
To shareholders are paid dividends.You receive a specific amount for each share you possess as an investor because they are paid out on a per-share basis.This sum is typically stated as a percentage of the stock’s current market value.
As an illustration, you may hear something like, “Enbridge currently has a dividend ratio of 8%.”This simply means that if Enbridge’s current stock price was $40, an investor would anticipate receiving $3.20 in dividends from the company over the course of the following year (.08 x 40 = $3.20).They would probably receive the $3.20 in four separate payments of $0.80 each.
Additionally, businesses are always free to declare “Special Dividends”.There is a special one-time distribution to shareholders in this case.
You must purchase a share before the “ex-dividend date” (which is stated by each company pretty long in advance) in order to be eligible for a dividend.
“How to buy dividend stocks in Canada?”
While it is still possible to buy dividend stocks over the phone using traditional brokerage systems, most investors now buy dividends on their own utilising discount brokerage accounts.
In order to inform our visitors about the top Canadian broker for long-term investing, Million Dollar Journey has assembled dozens of evaluations and comparison articles.
Learn how to maximise your savings in this regard by reading about the most well-known brokers, such as Qtrade and Questrade, as well as robo-advisors, such as Wealthsimple.
The other popular method is to use dividend-ETFs on the Toronto Stock Exchange (TSX) to expose your portfolio to Canada’s top dividend-paying stocks. Your investment dollars are instantly diversified to firms with a good dividend profile when you use a dividend ETF.
“When to buy dividend stocks?”
“Whenever you have the investing funds available to do so,” is the truthful response. There are many people who believe they can time the market and buy stocks at the exact right moment. Despite that belief, there is not much proof that it is.
Additionally, it might be challenging to predict when a stock is about to peak. Therefore, the people who keep to a pre-planned strategy and simply invest their extra money as soon as they can into shares of dividend-paying companies that they have done their research on and intend to hold for a long time are the most successful dividend investors that I have seen.
“When is the time to sell dividend stocks?”
The best time to sell dividend equities is never if you are like Warren Buffett and purchase securities that you “want to hold forever.” In reality, firms have reduced their dividend a couple times over the past 15+ years, and to me, this is a glaring red flag indicating there is seriously wrong with the company.
Because it has such a significant impact on the stock price, cutting a dividend is typically considered a last resort.Major shareholders typically sit up and take notice when the choice is made because they detest the prospect of forgoing that cash flow.
Having said that, I like to research a stock thoroughly before buying it.Because I am so confident in the long-term development of my dividend equities, I hardly ever sell any of them. For more detailed advice, check my articles on Canadian dividend kings and defeating the TSX.
The odds of successfully trying to enter and exit the market are poor, so it really pays to be certain in your stock selection decisions. This will allow you to not only hold onto your shares during market downturns but also to “Be fearful when others are greedy” and purchase additional shares of your preferred dividend stocks at lower prices.
“What are the best dividend stocks?”
Well, it’s obvious that you are aware of our picks for the finest Canadian dividend stocks if you have read this far. I’ve come to the conclusion that the Dividend firms Rock method of evaluating dividend firms by their “Dividend Triangle” is the finest long-term way to assess reliable Canadian companies after years of personal income investing and research. The basic goal is to give equal weight to a company’s overall revenues, earnings per share (EPS), and commitment to long-term dividend growth.
I used to think that dividend yield was the “be-all and end-all” of dividend investing, but Mike has gradually persuaded me that paying attention to the three indicators of revenues, earnings, and dividend growth will make your long-term dividend payouts and capital gains more secure.
“Are there tax benefits for dividend stock investing in Canada?”
One of the most tax-effective methods to earn money is through dividend stocks.
cash that works for you. This is particularly true at lower income levels, where the dividend tax credit really shines (such as those that many retirees normally account for at the end of the year).
Here’s the gist, in case you’ve never heard of the dividend tax credit or the dividend gross up:
1) The Provincial Dividend Tax Credit and the Federal Dividend Tax Credit are the two distinct dividend tax credits.
2) The notion of tax equity forms the basis for these tax benefits. Your dividend income is “grossed up” and a tax credit is applied as a result of the fact that firms pay corporate taxes before distributing money to shareholders.
3) In practise, this so-called “gross up + tax credit” frequently takes the form of the government cancelling a very large portion of your unpaid taxes while artificially inflating your income.
Here’s an illustration:
My dividend income would be $3,200 if I owned 1,000 shares of Enbridge (ENB) in 2020 and received $3.20 per share.
Now, I would be put in a particular tax bracket based on what other income I had. Of course, I might have received dividend payments from other equities, and I could have earned money by working.
The calculation for my dividend income would be as follows if I had an earned income of $60,000 and owned exclusively Enbridge stock:
The federal government would tax $60,000 of earned income at a rate of 0% on the first $13,000 and a rate of 15-20.5% on the remaining amount. After applying the dividend gross up and dividend tax credit, the tax rate on my $3,200 in Enbridge dividends would only be 7.56%.
examining the local component of the situation. In Ontario, the first $10,000 of my $60,000 in earned income would be taxed at a rate of 0%, and the remaining $60,000 would be taxed at a rate of 20-30%. I would only pay taxes on my $3,200 in Enbridge dividends at a rate of
The first $30,000 or so in dividend payments may potentially result in a negative tax rate for many retirees who are no longer earning a paycheque, which is less than a 0% tax rate!
Most Recent News on Canadian Dividend Stocks
Right now, the news cycle is still dominated by stories about inflation, but astute investors are keeping an eye on longer-term patterns. Although there are many factors driving up inflation, the reality is that, barring a “Black Swan event” like a nuclear war, we’re much more likely to be concerned about inflation being too low than we are about it being too high in a year.
Nevertheless, it is clear that the cost of debt has increased significantly. It was inevitable that the values of businesses that were expanding tremendously quickly by taking on debt to pay for new customers or acquisitions would fall back to earth. The tech industry has been the best example of this, as we have seen most of the major tech names suffer significant setbacks in 2022.
Thankfully, the Canadian market has never relied on rapidly expanding IT firms to support our overall index or guarantee dividend performance. It’s not good that Shopify has been put through the ringer (down 80% YTD), but those who invested in the company must have expected there would be some turbulence.
There is no reason to worry, even though there have been some early indications of capitulation, such as an increase in the number of investors switching to GICs. While costs are rising, several of the greatest Canadian dividend stocks have been able to weather the storm pretty well. Profit margins for many of these companies with long-lasting competitive advantages have never been greater. This should maintain a very high floor for Canadian dividend kings that value cash flow.
On a related point, I believe that the Canadian economy will benefit much from the rush to purchase US dollars (and from their appreciation versus the Canadian Dollar).
Many individuals are unaware that while a declining currency against our most significant trading partner (by far) makes it difficult to plan vacations or import items, it has enormous value for our companies. Right now, the world’s largest consumer market effectively receives Canadian goods and services at a reduced price!
While the situation in Ukraine is undoubtedly tragic, I have to believe that the majority of Canadian investors would prefer to see the war end than to add a few dollars to their portfolio. However, the sad truth is that Canada exports many of the same goods that are made in Russia and Ukraine. The more challenging it is for foreign nations to market their goods, the more profitable Canadian rivals become.
The increased demand for their goods has benefited Canadian energy corporations as well as businesses like Nutrien, Cameco, gold miners, pipelines, and agricultural producers. Although I don’t see this stopping anytime soon, you never know what the erratic European politicians would do given the dire situation.
Beginning in 2021, we made the prediction that Canadian midstream corporations were receiving far too much negative press and that the underlying pricing of commodities like oil and natural gas was lowering the value of these companies.
Since the pipelines only have a shaky correlation between commodity prices and their profit margin, we believed there might be a market inefficiency there. Enbridge was our top choice for a Canadian dividend stock, and it turned out great for us.
The pure oil firms continue to churn out earnings, while our midstream dividend standouts continue to report steady-as-she-goes gains in profit. I personally don’t want to base my investment strategy on the price of oil.
Yes, there is a chance that growth will resume, that supply problems will persist, and that prices will increase once more. On the other side, price signals may cause a significant increase in supply, delaying the return of demand for a number of years.
I still trust in my overall Dividend King Pick of National Bank even as our Canadian dividend kings plod along.In fact, compared to when 2022 first began, I have more faith in the company’s future prospects. The strong regional Quebec economy (where NB is situated – and which decided to re-elect a business-friendly government) along with its low P/E of 10.1, incredible low payout ratio of 31%, and this company’s low P/E all add up to a great value option.
Overall, the sixth-largest bank in Canada is still a stock with an extremely low floor (due to a very strong balance sheet and significant competitive advantage in Quebec) and a reasonably high ceiling in comparison to the other banks in Canada because of its tiny market cap. Given their most recent earnings report, management has demonstrated a commitment to rewarding shareholders in the long run, and I see no reason to assume that commitment will alter.
Further Research on Top Canadian Dividend Stocks
Although I concentrated on Canadian dividend growth stocks in this post, I also use Mike Heroux’s Dividend Stocks Rock (DSR) service if I want information on anything dividend-related, including US dividend stocks and inexpensive dividend stocks.
Mike is a veteran Canadian author who began his career at the same time as me.He has been a financial advisor and is a CFA.I’ve previously signed up for premium Globe and Mail channels and well-known investment newsletters like Morningstar, but Mike’s finished output is by far the finest.
He now focuses on not only studying the top dividend stocks in Canada but also explaining the findings of that research in unique, simple-to-understand ways.
