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What Is a Dividend?
The main purpose of a business is the generation of profits.
The profitability of a company benefits shareholders of a company in several ways.
They benefit when the value of the stock price goes up due to the optimism generated by the company’s profitability resulting in capital gains.
They also benefit from the income they receive from the profit the company makes, this is where dividends come in.
A dividend is a share of profits made by a company to its shareholders.
It’s important to note that not all companies issue dividend payments to their shareholders.
Some choose to keep the profits and reinvest them into growing the company.
On the other hand, some companies consistently distribute profits to their investors and these companies’ shares are what we call dividend stocks.
Some companies pay dividends at a fixed amount, others hold board of directors meetings to discuss the amount they would like to issue and others have shareholders vote on the dividend payout.
The equity investments are subject to market risks and may not be suitable for all investors. If you have any doubts as to the merits of an investment, you should seek advice from an independent financial advisor. So please invest at your own risk.
Why Invest in Dividend Stocks?
Dividend stocks are considered income stocks as they provide a regular source of income for investors over a set period and at a considerably lower risk.
Investing in the right dividend stocks in Canada will provide you with a regular source of dividend income and potential capital gains over time on your investment portfolio should you choose the right stock.
As with any investment, risks are always present and investors must take into account their investment goals and risk tolerance when selecting a suitable dividend stock.
For example, a high dividend yield stock may seem attractive at first but might not be a good investment long term because its share price value may fluctuate and potentially decrease more than its yield.
In this review, we will look at the best dividend stocks that investors should consider for their portfolios.
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Top Canadian Dividend Stocks
Canadian Natural Resources (TSE: CNQ)
Canadian natural resources is a Canadian oil and natural gas company founded in 1973 and based in Calgary, Canada.
The company has offshore operations in the North Sea (U.K sector), Gabon, Cote d’Ivoire, and Western Canada primarily Saskatchewan, Alberta, Manitoba, and British Columbia including the Canadian oil sands.
Canadian natural resources are the largest heavy crude oil producer in Canada as well as the largest independent natural gas producer in western Canada.
Canadian natural resources have a market cap of $90.93 billion with assets worth $75 billion (as of 2020).
Canadian natural resources had a $17 billion revenue year in 2020 and recorded a net income of $435 million in the same year.
The company has a forward P/E ratio of about 8%, a forward dividend yield of 4.45%, and a dividend payout ratio of 26.56%.
Canadian natural resources have a 21-year dividend growth streak and are worth looking into as an income stock.
National Bank of Canada (TSE: NA)
National Bank of Canada is the 6th largest commercial bank based in Toronto, Canada the largest bank in Quebec.
58% of National bank’s earnings are generated in Quebec.
The bank’s interests are in Europe and the United States and serve 2.7 million customers.
The bank employs over 26,000 employees.
The bank is mainly focused on Personal and commercial banking, Wealth Management, Capital markets, and International specialty finance.
The National Bank has a market cap of $31 billion and has about CAD$355 billion in assets.
They had an $8.93 billion fiscal revenue year in 2021 and a net income of $3.20billion for the same year.
The company has a dividend yield of 3.71%, a dividend payout ratio of 34.6, and a Price to Earnings(P/E) ratio of 9.47.
The bank has a forward dividend yield of 5.41%.
Transalta Renewables (TSE: RNW)
Transalta renewables is a subsidiary of Transalta corporation, an electricity generation company headquartered in Calgary, Canada.
The company was founded in 1911
Transalta renewable was founded in 2013 in which it Transalta corporation owns a 60% stake.
The company has most of its infrastructure based in North America (U.S and Canada) with some in Australia.
The company operates several facilities, including 13 hydro,22 wind,1 solar,6 gas, and 1 battery storage facility.
Wind power and Natural gas account for most of Transalta’s renewables cashflows.
Transalta renewables pay a management fee to contract its parent company to manage its operations and its employees.
The company has about 1,476 employees
Transalta renewables are the largest wind energy producer in Canada.
Transalta renewables have a market cap of CAD$5.56 billion with assets worth $9.7 billion (as of 2020).
Transalta renewables had a CAD$2.1 billion revenue year in 2020 and recorded a net income of $0.5 billion in the same year.
The company has a forward P/E ratio of about 18%, a forward dividend yield of 6.56%, and a dividend payout ratio of 218%.
Transalta renewable pay out a monthly dividend
The company’s high dividend ratio makes it a very attractive investment.
Canadian Imperial Bank of Commerce(TSE: CM)
The Canadian Imperial Bank of Commerce was created in 1961 after the merger of the Imperial Bank of Canada and the Canadian Bank of Commerce.
The bank has operations in canadian commercial banking, small business and personal banking, US commercial banking and wealth management, and canadian commercial banking and wealth management.
The bank serves 11 million customers and caters to commercial, corporate, and institutional clients and small businesses.
The bank currently has about 45,000 employees.
The bank has a market capitalization of $55 billion and has about CAD$837 billion in assets.
They had a $20 billion fiscal revenue year in 2021 and a net income of $6.45 billion for the same year.
The company has a dividend yield of 5.2%, a dividend payout ratio of $45.58, and a Price to Earnings(P/E) ratio of 8.85
Power Corporation of Canada (TSX: POW)
The Power Corporation of Canada is a wealth management and holding company founded in 1973 and is based in Montreal, Quebec, Canada.
The company has operations in Asia, North America, and Europe.
The Power Corporation of Canada’s primary interests is in wealth management services, retirement management services, investment management services, insurance, and platforms involved in alternative investments.
The company has about +30,000 employees.
The company has a market cap of CAD$22 billion with assets worth CAD$629billion (as of 2020).
The Power Corporation of Canada had a CAD$64 billion revenue year in 2020 and recorded a net income of CAD$1.9 million in the same year.
The company has a P/E ratio of about 6.99% and a dividend yield of 5.09%.
The Power Corporation of Canada’s dividend growth streak over the last decade has seen them grow 5.5% annually and is worth looking into as an income stock.
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When looking for suitable dividend stocks it’s wise to avoid growth stocks and prioritize stocks that would be considered blue chips since they have a proven track record of stability over the long term.
This comes at the cost of no capital appreciation potential but in this case, the income is prioritized over capital gains.