Canadian Dividend Kings & Aristocrats – Spring 2023

By Frugal Trader, MillionDollarJourney

Investing in Dividend Kings (aka Dividend Aristocrats) has come back into style again in as we approach the mid-way point of 2023. After a decade of cheap money-fuelled growth for unprofitable tech stocks the market has now clearly shifted toward the free cash flow darlings that I prefer. Click here to jump directly to my 2023 picks.

After the first few months of 2023, the Canadian market has continued to quietly chug along relative to the more volatile numbers seen in much of the world. For dividend-focused investors, the day-to-day market gyrations are irrelevant.

Reliable (if small) long-term stock appreciation, combined with juicy dividends, are why Canadian dividend kings hold a sacred place in my portfolio. We may very well be in a “sideways” market for a while, and in that situation, holding stocks that spin off gobs of dividend cash is an excellent way to position oneself.

While it looks like inflationary pressures are beginning to ease, top line revenue numbers continue to look good for the vast majority of Canada’s dividend all stars. Real returns though are dependent on profit margins and the ability to keep costs controlled. So far so good for the major Canadian blue chippers on this dividend kings list.

With most of Canada’s best dividend stocks being part of long-time market oligopolies, we see that they have been able to maintain or even grow their profit margins – meaning more profit for shareholders.

With little-to-no news of dividend cuts (or even pauses), dividend-focused investors have likely found it much easier to navigate the stormy market waters relative to growth stock enthusiasts.

Top Canadian Dividend King Pick for 2023: National Bank

Our 2021 top Canadian dividend king pick was Enbridge. I simply felt that given the company’s track record of producing solid returns and rewarding shareholders, the valuation was substantially off.

The stock rewarded me with a capital gain of over 21%, plus the 8.1% dividend (at time of purchase) for an overall return of roughly 29.5%. That compares favorably to the overall return of the TSX (27%) and 25% for CDZ – the Canadian dividend aristocrats ETF.

For 2022 our Canadian dividend king was National Bank (NA).

So… you might be surprised to learn that my Canadian dividend king pick for 2023 is (*drumroll*) National Bank!

Yes – I’m sticking with Canada’s fastest growing bank! I continue to believe in my investing thesis, the market just needs time to bear out the underlying fundamentals. So far so good, as National Bank shares are up nearly 11% year-to-date (and that doesn’t even take into consideration the juicy 4% dividend).

National Bank’s latest quarter earnings report saw a $2.35 EPS, and that represented a strong earnings beat.  The Bank’s Canadian operations continue to hold impressive profit margins – and given the strength of Quebec’s regional economy (National Bank’s home base) I don’t see any reason why this won’t continue to be the case.

Out of all the Canadian banks, National bank has been the most generous with its dividend raises over the last 3- and 5-year periods – BUT even with all that dividend generosity, it still has a fairly low payout ratio.  That bodes well for the long-term, and certainly means there is no dividend cut in store for 2023.

While Provision for Credit Losses (PCLs) will hold the banks a bit in 2023, I don’t see this as a significant headwind overall. I wrote more about the loan loss provisions that the financial institutions were setting aside in my investing in Canadian bank stocks article.

The banks should continue to benefit from the growing interest rate spreads, and their cautious building of reserves is the exact reason why they are such solid long-term investments.

My insights on National Bank – as well as the 2023 Canadian Dividend Kings list below – are based on my own research, but also relied heavily on the advice and tools provided by Dividend Stocks Rock.

DSR not only provides excellent written advice, but also a ton of free webinars, and ideal tools for analyzing both the Canadian and American dividend markets. Read my DSR review for an in-depth look at just why I’m such a big fan of what fellow Canadian Mike Heroux has put together.

Don’t just take my word for it, see what Mike Heroux has to say about National Bank after the latest round of bank earnings reports in 2023.  Mike used to work for National Bank for many years, so if you’re looking for someone that understands all aspects of this company – it’s him!

Dividend Aristocrats and Dividend Kings Offer Stable Growth

In fact, many studies (such as Vanguard) have proven that dividend growers are likely to outperform the market and do it with less volatility. Dividend growers such as the best Canadian dividend aristocrats will continue to increase their dividend in 2023.

Canadian companies with a long history of dividend growth will generally show a strong business model and robust financials. They have gone through many recessions and never stopped increasing dividend payments. In times of confusion and fear, you can go back and look at how companies went through the past crisis and kept their dividend streak alive.

I use the dividend strategy for my leveraged portfolio, a significant portion of my RRSP, and our corporate portfolio.  We currently collect a little over $73,000/year in dividends and if you are interested, you can follow my latest dividend update here.

In the past, I’ve written a number of articles on dividend growth stocks, I’ve never properly categorized them. Here are the most common dividend terms as they relate to the U.S. stock market:

• A Dividend Achiever is a company that has increased its dividend at least 10 years in a row;
• A Dividend Contender is a traded company that has raised dividends for 10 to 24 consecutive years.
• A Dividend Champion is a company that has increased its dividend at least 25 years in a row (regardless if it is part of the S&P 500 or not);
• A Dividend Aristocrat is a company that is part of the S&P 500 and that has increased its dividend at least 25 years in a row;
• A Dividend King is a company that has increased its dividend at least 50 years in a row. The true cream of the crop.

Dividend Aristocrats and Dividend Kings in Canada

Here in Canada, we have a relatively small market and an even smaller list of quality dividend stocks.  In a previous article about the top Canadian dividend growth stocks, you will see a number of dividend achievers (10 years+ ), a handful of dividend aristocrats (25 years+), but no dividend kings in Canada (although FTS (48) and CU (49) are getting close).

As of May 2023

Canadian Dividend Aristocrat Definition

While I used the terms dividend achievers and dividend aristocrats for the Canadian stock market  in the previous section, I must highlight that the official definition of the Canadian dividend aristocrat differs from the one established in the U.S.

In order to be considered as a S&P Canadian Dividend Aristocrat, the company must have increased its dividend payout every year for five years – Therefore, we are looking at stocks that have a good potential for raising its dividend but still pretty far away from 25 consecutive years.

Dividend Kings List

In a few years, we will be able to have a shortlist of Canadian dividend kings (including Fortis and Canadian Utilities). In the meantime, where do we find these elusive dividend kings? You’ll have to look at the biggest market in the world – the US!  In the US, there are 30 dividend kings that have increased their dividend at least 50 years in a row.

Here is a table supplied by Dividend Stocks Rock:

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Here is the same table sorted by yield:

As you can see from the list, some of these names are very recognizable with global brand awareness and long term competitive advantage.  Names such as Procter & Gamble, Coke, Johnson & Johnson, 3M, Colgate, and Lowe’s.

You will also notice that most of them show a low dividend yield. The dividend king average yield is 2.74% with an average dividend growth of 6.50%. This shows you that one must pay for the quality. Finally, most dividend growers will not only reward shareholders with dividend increases, but also with steady capital appreciation.

As a disclaimer, I hold the following dividend kings within my RRSP: Procter & Gamble; 3M; Emerson Electric; Coca-Cola; Target; and, Johnson & Johnson.  Also, this post is not meant to provide recommendations for your portfolio, but a starting point for your research.

Dividend King Investments for Canadian Retirees

Canadian retirees love collecting stable, dependable Canadian dividends. It makes sense that amongst those who prioritize stability and income flow, Dividend Kings and Dividend Aristocrats are in the highest demand.

In addition to the obvious reasons for retirees to love Canadian blue chip companies with strong balance sheets, there is a bit of a hidden reason as well: the tax advantages. Canadian dividend income is actually taxed at a negative rate until you hit the $40,000-$50,000 range (exact figure depends on which province you live in).

This means that a retired couple can earn close to $100,000 in Canadian dividend income before they pay a dime in income tax! At lower income thresholds, that negative tax rate can actually help offset income tax owing from part-time work or CPP/OAS payments.

Of course, it should be pointed out that one must hold these Canadian dividend stocks outside of their RRSP and TFSA in order to benefit from this tax treatment. It’s also important to understand that this advantageous tax treatment only pertains to Canadian stocks, and not to American or other international stocks. Dividends generated by those companies will almost assuredly be hit with a withholding tax before you get the money in your brokerage account.

Given the tax benefits and relative stability (still more risky than a Canadian GIC) it’s no wonder that Canadian Dividend King stocks are a hit with retirees. It is key to remember though, that diversity is your investing friend. It can be easy to become too focused on one specific type of company within the Canadian market.

Canadian Dividend King 2023 Outlook

While everyone else tries to get rich quick my jumping on and off the latest crypto trade, meme stock, or NFT, I prefer to cautiously and consistently look at companies that can produce profits for their shareholders.

What a crazy idea right?

The truth is that if you’re a patient investor that understand the value of a durable long-term advantage, then Canada is the place to be.  Our Canadian dividend kings are able to lock in long-term profits due to their position in secure oligopolies.

If you want to thoroughly understand Canadian dividend kings and American dividend aristocrats, then I recommend checking out one of Mike Heroux’s upcoming free webinars.

If you are interested in dividend investing, here is More Dividend Stock Investing Info:

• Dividend Stocks Rock Newsletter Signup
• How to Build a Dividend Growth Portfolio
• Beating the TSX (dogs of the TSX stock picks)
• How to buy stocks
• When to buy dividend stocks
• How to create a stock watchlist
• Top Canadian stock