Wednesday, July 13, 2011

Best Canadian Dividend Stocks

As a dividend growth investor, I typically hold mostly US based dividend stocks. There are several reasons behind that, which I outlined in this article on the best international dividend stocks. Another reason why I hold US based multinationals has been outlined in this article.
Canadian dividend stocks seems to be having characteristics that make them similar to their US counterparts. First, most Canadian stocks pay a regular distribution every quarter. Second, most Canadian blue chips pay a stable or rising dividend. This is unlike most European companies for example, which typically target a payout ratio based off earnings. Last, US investors get 15% of their Canadian dividend income withheld at the source. At tax time however, US investors get an offsetting credit against this tax withholding in taxable accounts. So the net effect is zero for most high income investors.

In order to find the best Canadian dividend stocks, I obtained a list of Canadian Dividend Achievers. These are Canadian companies, which have increased dividends for the past five or more consecutive years.

I then screened the list based off my entry criteria:

1. Dividend Yield of at least 2.50%
2. P/E Ratio below 20
3. Dividend Payout Ratio less than 60%

Only one of these stocks is traded on NYSE, and the rest are traded on the OTC market. The symbols used above also include the ones for the Toronto Stock Exchange.

On a side note, I was surprised that none of the Canadian banks appeared on this screen. Despite the fact that the Canadian banks such as Bank of Montreal (BMO), Toronto-Dominion Bank (TD), Royal Bank of Canada (RY), Bank of Nova Scotia (BNS) and Canadian Imperial Bank of Commerce (CM) were not affected by the financial crisis of 2007 - 2009, they did freeze dividends for almost 2 years. Chances are however, that within a few short years, these companies would be able to build another streak of consecutive dividend increases.

Full disclosure: Long TD

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This article was included in the Carnival of Personal Finance #318: The Breaking Bad Edition


  1. Being from the south of your border, I did add RCI to my portfolio. Can't say I'm disappointed!

  2. The Canadian Banks are very strong and the freeze in dividends has already been broken. The major banks are again increasing dividends.
    Canadian Banks are my favorite financial plays. Especially BNS for it's international growth.
    Long - BNS, RY

  3. I visit your blog regularly, and am a canadian myself. I also like investing in dividend paying, high quality companies.

    My favorite canadian dividend businesses are BNS, TD, CNR/CNI, ENB, RCI.B/RCI. I drip Scotia and Rogers. Unfortunately CN doesnt have a DRIP plan. I've been looking to enter TD recently, and ENB at better valuations.

    thanks for all your great blogs!

  4. I am pretty sure you computed the dividend for Toromont wrong. Since the spin off, it is cut to 10 cts/qtr.

  5. Well you know Canada is basically a commodity exporting country, so as long as the world industrial production continues buying a few of these broad based blue chips shouldn't hurt.

  6. I have heard great things about the general business methods of Canadian corporations and banks. An investor working on protecting the downside risk should have a few of these gems in his portfolio!

  7. Regarding the 15% withholding, there is no withholding for US citizens on stocks held in a 401K or IRA. REIT's are an exception and 15% will be withheld on dividends paid by them whether they are in a taxable or tax-deferred retirement account.

    Long - BNS, TD, TRI, TRP

  8. Here's a recent note regarding Corus Entertainment shares for dividend growth investors (good news)

    Corus Entertainment announces 16% dividend increase for Class A and B shareholders

    Corus Entertainment Inc. (TSX: CJR.B) announced today that its Board of Directors has approved a $0.12 increase in its annual dividend.

    The Company's monthly dividend for holders of its Class A and Class B Shares will increase to $0.072083 and $0.0725 respectively. The dividend will be paid on each of August 31, 2011, September 30, 2011 and October 31, 2011 to shareholders of record at the close of business on August 15, 2011, September 15, 2011 and October 14, 2011 respectively.

    At the new rate, the expected dividend on an annual basis for the Company's Class A and Class B Shares is $0.865 and $0.87 respectively, up from the previous rate of $0.745 and $0.75 respectively.

  9. Have you taken a look at TELUS and what are your thoughts on it (just an FYI, I am an employee). They list on both the TSX and NYSE, and announced recently an intention to raise dividends twice annually through to 2013, targetting 10% dividend growth on an annual basis. Current P/E is 15.73 and Dividend Payout is 4.06%, the payout ratio is targeted at up to 65% of sustainable earnings (so just north of your 60% target, and currently about 62%).

  10. I am surprised BCE, Telus did not make the list. BCE has a great selection of mobile phones, so they are out-manoeuvring RCI. RCI however is ahead of the curve with LTE aka "4G-like".

    The Cdn. banks are incredibly solid with a nice dividend payout. However, they will fall in sympathy with BAC, US. banks even though their loans are guaranteed by the government.

  11. Canadian investors need to understand the benefits of the dividend tax credits.

    Dividends from Canadian public companies may reduce your taxes payable.


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