The Best Canadian Dividend Stocks

11/22/2017 5:00 am EST

Focus: DIVIDEND

Chloe Jensen

Chief Analyst, Cabot Dividend Investor

Because of the Canada's strong energy, commodity and financial industries, the country is home to some of the world’s best dividend-paying stock, notes income expert Chloe Lutts Jensen. Here, the editor of Cabot Dividend Investor looks at 5 of her favorites.

Long-term investors in particular will find a plethora of high-quality, highly consistent dividend stocks in Canada. Using dividend histories, earnings records and dividend payout ratios, I’ve compiled a list of the top Canadian dividend stocks to buy today.

Bank of Montreal (BMO) is the fourth-largest bank in Canada. BMO pays quarterly dividends that currently yield 3.6%. The company has paid dividends every year for over 100 years, and has increased the dividend twice in the past year, and 10 times in the past five years.

After raising the dividend every year from 1995 to 2008, BMO suspended dividend increases for a few years in response to the financial crisis but never reduced the dividend.

Bank of Montreal is growing steadily through acquisitions and expansion into the U.S., and EPS have growth in each of the last five years. Going forward, analysts expect EPS to grow 7% this year and another 3% next year. BMO trades at a P/E of 12 and the company has kept its dividend payout ratio at or below 50% for the past five years. For long-term investors, BMO is a reliable way to generate income year after year.

The Bank of Nova Scotia (BNS), which also goes by Scotiabank, is Canada’s third-largest bank. Since 2008, growth has focused primarily on international expansion, and about half of revenues now come from global and international operations.

Revenues and EPS have grown every year since 2008, and growth in both has averaged 6% in each of the last five years. Analysts expect EPS growth to continue to average about 6% per year going forward, after slightly-better-than-average growth (around 8%) this year.

Like BMO, Scotiabank often increases its dividend more than once a year, and growth has averaged 7% per year over the past five years. There were no dividend increases in 2009 or 2010, but Scotiabank upped the dividend every year since, and kept the dividend payout ratio under 51% every year since 2009.

Bank of Nova Scotia currently yields 3.8% and trades at a P/E of 13 and a forward P/E of 12. BNS is a good choice for a relatively high and steadily rising income stream.

Another of the “Big Five” Canadian banks, Canadian Imperial Bank of Commerce (CM), or CIBC, was named the strongest bank in North America in 2012. About 60% of net income currently comes from its Canadian retail and business banking customers.

The company has paid dividends since 1868, and currently yields 4.7%. Like its peers, CIBC often delivers more than one dividend increase a year if cash flow is growing steadily. Over the past five years, the dividend has grown by an average of 7% per year. CIBC has kept the dividend payout ratio under 50% since 2011.
Revenues have grown every year since 2008, averaging about 9% per year. Analysts expect sales to continue growing at about 8% per year this year and next. EPS are expected to rise 7% this year and to be about flat in 2018, with growth averaging 3% over the next five years.

Due to a big pullback in 2015, CM is a little less expensive than its peers, trading at a P/E of 10. In fact, the stock’s lack of progress over the past decade could make CM a more attractive choice for value investors.

Montreal-based Canadian National Railway (CNI) is Canada’s largest railroad. Formerly a holding of the Canadian government, CNI was privatized in 1995.
The company’s freight network covers most of southern Canada, stretching from the Pacific coast of British Columbia to the Atlantic coast of Nova Scotia. Since its 1998 acquisition of Illinois Central, the company has also operated in the U.S., where its network stretches from Minnesota to Louisiana.

EPS have grown every year since 2009, by an average of 11% per year. Analysts expect revenue to grow 9% this year and 5% next year, fueling 10% and 9% EPS growth. Over the next five years, EPS growth is expected to average 7% per year.


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CNI yields 1.6% today, and has increased its dividend every year since 2013. The stock’s payout ratio is usually below 30%, though it’s currently 32%. CN is a good choice for long-term income and growth investors.

Calgary-based Canadian Natural (CNQ) is an oil and gas exploration, development and production company. The company has been Canada’s largest conventional oil producer since 2011. Most production is in Canada, but the company also has fields in the North Sea and off the coast of West Africa.

CNQ has paid dividends since 2001 (the year after its IPO), but its dividend growth history is mediocre, with long periods of stagnation. CNQ’s payout ratio is also more volatile than is ideal, ranging from 4% to 235% over the past decade. The high point came only a couple of years ago, when the oil price crash nearly halved revenues and flipped Canadian Natural’s EPS negative.

So CNQ is less reliable than the other stocks on this list, given the company’s exposure to energy prices. But analysts expect revenues to rise a whopping 51% this year, followed by equally impressive 18% growth next year.

Over the longer-term, growth should return to more typical levels, with EPS growth averaging about 4% per year. For medium-term investors who can tolerate some volatility, the stock’s current yield of 2.4% may be attractive.

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