Dividend growth investing has the potential to deliver reliable streams of income, with the added benefit of tax efficiency. Passive dividend income streams are increasingly being viewed as a viable strategy towards financial independence.
The right dividend stocks can certainly serve that purpose for Canadian investors. The Toronto Stock Exchange (TSX) features several ranking stocks with a history of dividend growth. We have evaluated the top dividend stocks in Canada for 2020 and evaluated their performance and viability as part of a diversified financial portfolio.
The trick to investing in these types of stocks is picking those with consistent annual dividend increases.
The list of Canadian private companies paying increasing annual dividends is limited to a select number of companies. The general trend for companies that pay dividends over time is to continue paying dividends, given that this becomes a mandated policy of these corporations.
Companies that are no longer listed as dividend paying companies may fall off the grid for any number of reasons such as reductions of dividends, pause in dividend increases, or acquisition of the company by another company. As always, it is incumbent on investors to conduct due diligence to ensure that the right dividend stocks are purchased to bolster a financial portfolio.
What Top Dividend Stocks Canada Are Available?
Canadian dividend stocks include a variety of top performing options such as BNS (Bank of Nova Scotia), CAE (CAE Inc), CM (Canadian Imperial Bank of Commerce), CWB (Canadian Western Bank), EIF (Exchange Income Corporation), KEY (Keyera Corp), LGT.B (Logistec Corporation), RBA (Ritchie Bros. Auctioneers), RY (Royal Bank of Canada), and SAP (Saputo Inc) – all of which are listed on the TSE.
When evaluating the performance of Canadian dividend stocks, it's important to take several factors into consideration, notably the most recent performance in terms of dividend yield, projected 10-year dividend yield, dividend yield 5-year average, and the dividend rate in CAD. Below are the Canadian dividend quotes midway through December 2019:
- BNS – 4.90% dividend yield, projected 10-year dividend yield of 4.90%, dividend yield 5-year average 4.30%, dividend rate of $3.60
- CAE – 1.30% dividend yield, projected 10-year dividend yield of 1.30%, dividend yield 5-year average 1.50%, dividend rate of $0.44
- CM – 5.20% dividend yield, projected 10-year dividend yield of 5.20%, dividend yield 5-year average of 4.60%, dividend rate of $5.76
- CWB – 3.60% dividend yield, projected 10-year dividend yield of 3.60%, dividend yield 5-year average 3.30%, and dividend rate of $1.12
- EIF - 5.10% dividend yield, projected 10-year dividend yield 5.10%, dividend yield 5-year average 6.10%, and dividend rate of $2.28
- KEY - 5.70% dividend yield, projected 10-year dividend yield 5.70%, dividend yield 5-year average 4.70%, and dividend rate of $1.92
- LGT.B - 1.00% dividend yield, projected 10-year dividend yield 1.00%, dividend yield 5-year average 0.90%, and dividend rate of $0.41
- RBA - 1.40% dividend yield, projected 10-year dividend yield 1.40%, dividend yield 5- year average 1.60%, and dividend rate of $0.80
- RY - 4.00% dividend yield, projected 10-year dividend yield 4.00%, dividend yield 5-year average 3.80%, dividend rate of $4.20
- SAP – 1.70% dividend yield, projected 10-year dividend yield 1.70%, dividend yield 5-year average 1.50%, dividend rate of $0.68
Picking Top Performing Dividend Stocks
It is worth considering some of the ranking dividend stocks such as TransCanada Corporation which boasts 18 years of increases, Bell Canada with 10 years of increases, Canadian Utilities with 47 years of increasing dividends, Bank of Nova Scotia with 8 years of increasing dividends, and Enbridge with 23 years of increasing dividends. Ideally, you would want to pick a dividend growth stock with a yield of 2.5% +. Other factors to consider include an established track record and solid management.
We have highlighted several stocks with yields above 2.5% in the aforementioned listings for quick and easy access. Companies with excessive payout ratios should be avoided.
It's also worth pointing out that a history of increasing dividends is insufficient in terms of the selection of a financial portfolio of dividend stocks. True diversification requires a focus on different sectors, investments in large cap companies, and thorough scrutiny of the company's earnings history. By following this advice, you can confidently pick a quality selection of Canadian growth stocks with solid dividend payments.
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