Regular blog readers know that I’m a big proponent of passive investing with low cost, globally diversified index funds and ETFs. Why? Low fees are the best predictor of future returns. Global diversification reduces the risk within your portfolio. Index funds and ETFs allow investors to hold thousands of securities for a very small fee.
Investors who eventually come to understand these three principles want to know how to build their own index portfolio. There are several ways to do this: pick your own ETFs through a discount broker, invest with a robo-advisor, or buy your bank’s index mutual funds.
Still, the amount of information can be overwhelming. There are more than 1,000 ETFs, thousands of mutual funds, a dozen or more discount brokerage platforms, and nearly as many robo advisors. The choices are enough to make your head spin.
Now, I’ll explain exactly how I invest my own money so you can see that I practice what I preach.
My Investing Journey
I started investing when I was 19, putting $25 a month into a mutual fund. When I began my career in hospitality, I contributed to a group RRSP with an employer match. The catch was that the investments were held at HSBC and invested in expensive mutual funds.
When I left the industry I transferred my money (about $25,000) to TD’s discount brokerage platform. That’s when I started investing in Canadian dividend-paying stocks. I followed the dividend approach after reading Norm Rothery’s “best dividend stocks” in Canada articles in MoneySense.
I later found dividend growth stock guru Tom Connolly (plus a devoted community of dividend investing bloggers) and started paying more attention to stocks with a long history of paying and growing their dividends.
Five years later I had built up a $100,000 portfolio with 24 Canadian dividend stocks. My performance as a DIY stock picker was quite good. I had outperformed both the TSX and my dividend stock benchmark (iShares’ CDZ) from 2009 – 2014. My annual rate of return since 2009 was 14.79%, compared to 13.41% for CDZ and 7.88% for XIU (Canadian index benchmark).
But something wasn’t quite right. I started obsessing over oil & gas stocks that had recently tanked. I had a difficult time coming up with new dividend stocks to buy. I read more and more opposing views to my dividend growth strategy and realized I was limiting myself to a small subset of stocks in a country that represents just 3-4% of the global stock market.
Furthermore, new products were coming down the pike – including the introduction of Vanguard’s All World ex Canada ETF (VXC). Now I could buy a tiny piece of thousands of companies from around the world with just one product.
So, in early 2015 I sold all of my dividend stocks and built my new two-ETF solution (VCN and VXC). I called it my four-minute portfolio because it literally took me four minutes a year to monitor and add new money. No more obsessing over which stocks to buy or worrying if a stock was going to go to zero.
Fast-forward to 2019 and another product revolution made my portfolio even simpler. Vanguard introduced its suite of asset allocation ETFs, including VEQT – my new one-ticket investing solution.
The next change to my investment portfolio was in January 2020 when I moved my RRSP and TFSA from TD Direct Investing over to Wealthsimple Trade to take advantage of zero-commission trading. Continue Reading…
As we update our list of the Best Canadian Dividend Stocks for 2022, we continue to focus on four key areas:
Dividend Yield
Dividend Growth Consistency
Earnings Per Share
Overall Company Revenues
As we head into Q3, Canadian dividend stocks have continued to reward our confidence in them. While high-flying tech stocks have gotten slaughtered (and then recovered a little bit), and European stocks continue to see their growth evaporate, Canadian oligopolies continue to churn out dependable dividend growth. With Canadian forward P/E now at 12 – well below their historical average of 14 – there is no better place to be in terms of equity exposure if you prize caution and dividend yield.
While they have suffered drawdowns at times due to market-wide momentum, they have held up quite well, and earnings reports have supported the long-term viability of their dividends.
While many companies around the world are seeing their bottom lines chewed up by increasing costs, our top Canadian dividend stocks continue to show the pricing power that made us so confident in recommending them in the first place.
As a longtime dividend investor (I’ve had a Canadian dividend investing portfolio for over 15 years now, since I started the Smith Manoeuvre) I’ve learned that while current dividend yield is a beautiful thing, it’s the long-term dividend growth and earnings per share (EPS) that will really drive your overall portfolio returns.
My personal selection for the top dividend stocks for long-term investments are available below.
Our Top 10 Canadian Dividend Growth Stocks (September 2022)
Here’s a look at our top 10 long-term Canadian dividend stocks in order of their dividend increase streak.
For my full 32-stock list of Canadian dividend earners that I’m buying today – as well as the 74-stock list of US Dividend all stars that I recommend – check out the platform that I personally use to do my dividend stock research.
Note: Data on this article updates periodically. If you are looking for real time data and guidance, read our recommendation below.
More Up to Date Canadian Dividend Stocks Data
The easiest way to keep up to date with the best dividend stock picks, is by signing up with Dividend Stock Rock. DSR is not just a weekly newsletter with stock picks. It’s a program that will help you manage your portfolio and improve results using unique and sophisticated tools.
The person behind DSR is Mike, the most prominent and active dividend stock blogger in Canada and is a certified financial planner since 2003.
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2022 Canadian Dividend Update
The war in Ukraine has shaken markets around the world, and with the word “recession” appearing every two paragraphs in most financial publications, people have pulled money out of markets to some degree. (Although perhaps not as much as the initial “meltdown skeptics” initially anticipated.)
This has resulted in some stocks seeing their valuations get beat up despite actually increasing both their revenues and operating profits. You can see from the chart below for example that Canadian banks stocks just continue to print free cash flow and increase dividends at a safe (but lucrative) rate.
Given their very attractive current valuations, you’d have to expect a recession to crater their earnings by 20%+ for this to make sense – and I just don’t see that happening.
Bank
Dividend Increase
EPS
2017 Dividend
2021 Dividend
2022 Dividend
Payout Ratio
BMO.TO
25.47%
53.28%
$0.88
$1.06
$1.33
36.56%
NA.TO
22.54%
57.29%
$0.56
$0.71
$0.87
31.37%
TD.TO
12.66%
20.06%
$0.55
$0.79
$0.89
40.86%
RY.TO
11.11%
41.39%
$0.83
$1.08
$1.20
39.02%
BNS.TO
11.11%
45.30%
$0.76
$0.90
$1.00
46.54%
CM.TO
10.27%
69.38%
$1.27
$1.46
$1.61
41.81%
With payout ratios like the ones above, combined with those really solid Earnings Per Share numbers – we remain strong in our belief that there are no better options for investors who want stable long-term growth combined with free cash flow.
With inflation fears now dominating the media news cycle, we see more than ever that companies with solid balance sheets and oligopoly-driven moat stocks are the smart long-term play. Companies that can pass along those inflation-fuelled rise in costs have historically outperformed during inflation cycles.
Frankly, I think all of this talk about inflation might be a bit overdone, and that it’s likely to come down to the 3-3.5% range next year. At that rate, it’s really only a mild concern in the grand scheme of things. I’d be much more worried if this was deflation we were talking about!
Our list of top Canadian inflation stocks explains exactly which companies we believe are best positioned in order to pass along the inevitable price increases and increased costs that will come along in 2022.
Of course we remain committed to our long-term strategy of balancing EPS with a company’s ability to grow its dividend, in order to allocate our personal dividend nest egg.
Afterall, the only thing better than a high dividend yield today, is a much larger (and increasing) one tomorrow!
Check out our in-depth Dividend Stocks Rock Review for a deeper dive on just why we trust the service so much, and more details on our exclusive promo offer code.
My Top Canadian Dividend Stock Recommendations
Sorted in order of dividend streak:
Fortis (FTS.TO) – 48 Years of Dividend Growth
3.67% Dividend Yield
6.68% 5 Year Revenue Growth
6.10% 5 Year Dividend Growth
79.85% Payout Ratio
22.06 P/E
Investment Thesis:
Fortis aggressively invested over the past few years resulting in strong and solid growth from its core business. You can expect FTS’s revenues to continue to grow as it continues to expand. Strong from its Canadian based businesses, the company has generated sustainable cash flows leading to four decades of dividend payments.
The company has a five-year capital investment plan of approximately $19.6 billion for the period 2021 through 2025. Only 33% of its CAPEX plan will be financed through debt. Nearly two-thirds will come from cash from operations. Chances are most of its acquisitions will happen in the US.
We also like the FTS goal of increasing its exposure to renewable energy from 2% of its assets in 2019 to 7% in 2035. The FTS yield isn’t impressive at around 3.70%, but there is a price to pay for such a high-quality dividend grower.
Dividend Growth Perspective:
Management increased its dividend 6% in 2019 and 2020 and has declared that it expects to increase dividends by 6% annually until 2025. We like it when companies show motivation for growth (through acquisitions) and reward shareholders at the same time!
After all, Fortis is among those rare Canadian companies who can claim it has increased its dividend for 48 consecutive years. Fortis is a great example of a “sleep well at night” stock.
Enbridge (ENB.TO) – 26 Years of Dividend Increases
6.38% Dividend Yield
6.37% 5 Year Revenue Growth
9.52% 5 Year Dividend Growth
117.23% Payout Ratio
22.30 P/E
Investment Thesis:
ENB’s customers enter 20-25-year transportation contracts. It is already well positioned to benefit from the renewed profits of the Canadian Oil Sands (as its Mainline covers 70% of Canada’s pipeline network).
As production grows, the need for ENB’s pipelines remains strong.
After the merger with Spectra, about a third of its business model will come from natural gas transportation. Enbridge has a handful of projects on the table or in development. It must deal with regulators notably for their Line 3 and Line 5 projects. Both projects are slowly but surely developing.
The cancellation of the Keystone XL pipeline (TC Energy) secures more business for ENB for its liquid pipelines. ENB has now a “greener” focus with their investments in renewable energy. The stock offers a yield over 6% which makes it a strong candidate for any retirement portfolio.
Dividend Growth Perspective:
The company has been paying dividends for the past 65 years and has 26 consecutive years with an increase. While it’s probable dividend growth won’t be as generous as compared to the past three years (10%/year), the current generous yield makes up for it. Management aims at distributing 65% of its distributable cash flow, leaving enough room for CAPEX.
Look for their latest quarterly presentation for their payout ratio calculation. Management expects distributable cash flow growth of 5-7%. Therefore, you can expect a similar dividend growth rate. We have used more conservative numbers in our DDM calculation.
Canadian National Railway (CNR.TO) – 26 Years of Dividend Increases
1.90% Dividend Yield
3.76% 5 Year Revenue Growth
10.40% 5 Year Dividend Growth
35.57% Payout Ratio
21.17 P/E
Investment Thesis:
Canadian National has been known for being the “best-in-class” for operating ratios for many years. CNR has continuously worked on improving its margins. The company also owns unmatched quality railroads assets.
CNR has a very strong economic moat as railways are virtually impossible to replicate. Therefore, you can count on increasing cash flows each year. Plus, there isn’t any more efficient way to transport commodities than by train. The good thing about CNR is that you can always wait for a down cycle to pick up some shares. There’s always a good occasion around the corner when we look at railroads as attractive investments.
Finally, the cancellation of the Keystone XL pipeline has driven more oil transportation toward railroads. CNR has benefitted from this tailwind.
In 2021 CNR entered a bidding war against CP to buy the Kansas City Southern Railroad. When the deal fell through for CNR, and the company announced a renewed focus on efficiency, long-term investors were rewarded handsomely as the stock shot up in value.
Dividend Growth Perspective:
CNR has successfully increased its dividend yearly since 1996. The management team makes sure to use a good part of its cash flow to maintain and improve railways, all while rewarding shareholders with generous dividend payments.
CNR shows impressive dividend records with very low payout ratios. While the business could face headwinds from time to time, its dividend payment will not be affected. Shareholders can expect more high-single-digit dividend increases.
Telus (T.TO) – 18 Years of Dividend Increases
4.58% Dividend Yield
5.76% 5 Year Revenue Growth
6.68% 5 Year Dividend Growth
103.38% Payout Ratio
22.10 P/E
Investment Thesis:
Telus has grown its revenues, earnings, and dividend payouts on a very consistent basis. It is very strong in the wireless industry and is now attacking other growth vectors such as the internet and television services.
The company has the best customer service in the wireless industry as defined by their low churn rate. It uses its core business to cross-sell its wireline services. Telus is particularly strong in Western Canada, but has the recent Rogers turmoil to increase market share throughout the country.
Telus is well-positioned to surf the 5G technology tailwind. This Canadian telecom stalwart looks at original (and profitable) ways to diversify its business. Telus Health, Telus Agriculture and Telus International (artificial intelligence) (TIXT.TO) are small, but emerging divisions that should lead to more growth going forward.
Dividend Growth Perspective:
This Canadian Aristocrat is by far the industry’s best long-term dividend-payer (as opposed to short-term yield). Telus has a high cash payout ratio as it puts more cash into investments and capital expenditures.
Capital expenditures are always taking away significant amounts of cash due to their massive investment in broadband infrastructure and network enhancement. Such investments are crucial in this business.
Telus fills the cash flow gap with financing for now. At the same time, Telus keeps increasing its dividend twice a year showing strong confidence from management.
Emera (EMA.TO) – 15 Years of Dividend Increases
4.31% Dividend Yield
6.15% 5 Year Revenue Growth
5.24% 5 Year Dividend Growth
128.82% Payout Ratio
29.42 P/E
Investment Thesis:
Emera is a very interesting utility with a solid core business established on both sides of the border. EMA now shows $32 billion in assets and will generate annual revenues of about $6 billion. It is well established in Nova Scotia, Florida, and four Caribbean countries.
This utility is counting on several “green projects” consisting of both hydroelectric and solar plants. Between 2021 and 2023 management expects to invest $7.4 to $8.6B in new projects to drive additional growth. These investments decrease the risk of future regulations affecting its business as the world is slowly moving toward greener energy.
Most of its CAPEX plan will be deployed in Florida where Emera is already well established. In general, Florida offers a highly constructive regulatory environment. In other words, EMA shouldn’t have any problems raising rates. This is another “sleep well at night” investment.
Dividend Growth Perspective:
Emera has been increasing its dividend payments each year for over a decade. With the purchase of TECO energy management intends to continue that tradition. The company forecasts a 4-5% dividend growth rate through 2022, while targeting a payout ratio of 70-75%.
At a 4%+ dividend yield, this is a keeper for several years. Don’t get fooled by the high payout ratio, as the adjusted earnings show a payout ratio around 80% including the recent dividend growth. This is the type of company that fits perfectly in a retirement portfolio.
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*Updated for August, 2022*
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