Canadian Stocks Have Less Political Baggage than U.S. or Chinese Stocks Right Now. And These 4 Dividend Payers Look Especially Low Risk.
The hottest stocks in Canada in recent years have been the cannabis stocks, but they’ve also been extremely volatile—in both directions. Moves of 10% and even 20% are not uncommon. For a lot of investors, that’s just too much risk.
So today I’m looking at safer group of Canadian stocks—stocks with low risk and big dividends. These low-risk Canadian stocks won’t make you rich overnight, but they will let you sleep well, as they all have low volatility and high dependability. Plus, each one has a positive long-term chart, so you can invest in any one of them and expect to come out ahead in the long run.
Low-Risk Canadian Stock #1: Canadian Imperial Bank of Commerce (CM)
One of the big five banks of Canada, Canadian Imperial Bank of Commerce (better known as CIBC) pays a dividend of 4.1%, which is above average for a bank stock. Yet the payout ratio is 49%, so the dividend is well covered by earnings.
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In the first quarter, net income per share was $3.59, up 282% from the year before (the pandemic makes comparisons tough), primarily due to lower provisions for credit losses. The after-tax profit margin was a plump 29.9%. Yet the stock’s forward P/E ratio is a modest 11.2.
Commenting on the quarterly results, CEO Victor G. Dodig said, “We are delivering results by building on the momentum we have established in our Canadian consumer franchise, further accelerating our performance in areas where we have strength, and simplifying and transforming our bank to enable reinvestment for growth.”
Earnings forecasts are a bit difficult, thanks mainly to the unknown of interest rate fluctuations, but analysts are looking for earnings of $11.40 this year, which would be up 18% from 2020. Of course, that projection is already baked into the stock to a large degree.
CIBC is definitely forward-looking. It was the first bank in Canada to release an iPhone banking app (in 2010). It was the first bank in Canada to offer all three leading mobile wallets. And it was the first major Canadian bank to introduce free mobile credit scores for clients. Also, CIBC was one of two banks to earn the highest overall score in The Forrester Banking Wave: Canadian Mobile Apps.
As to the chart, it’s been generally positive since the March 2020 market bottom, running from 46 to a recent high of 119 on the heels of the excellent earnings report. If you’re looking to buy, I suggest waiting for the next regular correction.
Low-Risk Canadian Stock #2: Pembina Pipeline (PBA)
Pembina pays the highest dividend of the group, 6.7%. But you’ve got to sit through some bumps if you hold this stock, given the ups and downs of oil prices.
The company operates over 10,000 kilometers of pipeline across Alberta and British Columbia, moving both natural gas and other petroleum products across the country and into the U.S.
First-quarter results, released May 6, saw revenues grow 22% to $2.05 billion, while earnings were flat at $0.51 per share. Looking ahead, analysts were projecting 2021 full-year EPS of $1.91, and then $2.02 in 2022.
But then this week the company released a bombshell, with the announcement that it has agreed to combine forces with Inter Pipeline, which will result in one of the largest energy infrastructure companies in Canada, with an enterprise value of $53 billion.
Inter Pipeline had recently been the subject of a hostile offer by Brookfield Infrastructure, but management staunchly resisted the offer, instead (apparently) finding a better match—a “White Knight”—in Pembina.
The combined company is expected to generate $1.1 to $1.4 billion of adjusted cash flow from operations after dividends once it is in full service.
As to the chart, it is often a slow and steady climber—but not always. The 2020 Covid market crash dropped it from 49 to 19, but since then it’s come back with a vengeance. The announcement of the merger pulled the stock down briefly, as technically, Pembina is buying Inter Pipeline shares. But overall, the current trend is quite healthy, and I have little doubt that these dividends will continue to flow.
Low-Risk Canadian Stock #3: Restaurant Brands (QSR)
The restaurant industry was hit hard by Covid, but the professionals at Restaurant Brands came through only slightly scathed, and primed to grow from here. This plain name owns three of consumers’ favorite fast-food brands: Burger King, Tim Hortons and Popeyes Louisiana Kitchen. All told, its holdings bring in $30 billion in system-wide sales from over 24,000 restaurants in more than 100 countries and U.S. territories.
Burger King is the biggest contributor to the business, accounting for 67% of revenues, but Popeyes, the smallest contributor, is growing the fastest.
In the first quarter, revenues grew 3% from the year before to $1.26 billion, while earnings grew 15% to $0.55 per share.
The quarterly dividend is 3.0%.
As for the stock, while it crashed hard to the March 2020 bottom, eventually finding a nadir at 25, it quickly came roaring back, and in recent months has painted a pretty picture of higher highs and higher lows, marching steadily upward. I think buying on any normal correction will work out fine, especially if you love dividends.
Low-Risk Canadian Stock #4: Telus Corp (TU)
Telus is one of the major Canadian telecom providers, providing everything from dial-up phone service to internet access to streaming video. (They claim to have the fastest wireless network in Canada.)
Long-term trends are excellent, if slow; the company has grown revenues by single-digit percentages every year of the past decade.
In the first quarter of 2021, the company added 145,000 new wireless, internet and TV customers, as well as 51,000 new wireline customers.
Revenues grew 9% to $4.0 billion, while earnings shrank 16% to $0.27 per share. Looking forward, analysts are expecting earnings of $0.90 per share for the whole year, and then a resumption of the growth trend. The dividend is 4.5%.
As for the stock, it bottomed at 14 in March 2020, climbed quietly back up to its old high by January, and finally broke out to new highs in May.
The Best Stock of the Four
Any one of these Canadian stocks might be a fine long-term holding, but what if you’re more short-term oriented? What if you want to benefit from an up-cycle and then avoid the down-cycle?
Investors comfortable chasing momentum should focus on the stocks hitting new highs today—Canadian Imperial Bank (CM) and Telus (TU). Contrarily, investors looking to “buy the dip” should focus on Pembina Pipeline (PBA), which gapped down after announcing its big acquisition.
Do you own any Canadian stocks? Any Canadian dividend payers that you like? Tell us about them in the comments section below!
Timothy Lutts heads one of America’s most respected independent investment advisory services. Each week, Tim personally picks the single best stock in his exclusive Cabot Stock of the Week advisory. Build your wealth and reduce your risk with the top stock each week for current market conditionsLearn More
*Note: This post has been updated from an original version, published in 2019.