10 Top Canadian Dividend Stocks, Part 1

Because of the country’s strong energy, commodity and financial industries, Canada is home to some of the world’s best dividend-paying stocks.

Long-term investors in particular will find a plethora of high-quality, highly consistent dividend stocks in Canada.

Using dividend histories, earnings records and dividend payout ratios, I’ve compiled a list of the 10 top Canadian dividend stocks to buy today.

The first five are named below, and here are the next five.

Five Top Canadian Dividend Stocks

Top Canadian Dividend Stock #1: Bank of Montreal (BMO)

Bank of Montreal is the fourth-largest bank in Canada. BMO pays quarterly dividends that currently yield 3.6%. The company has paid dividends every year for over 100 years, and has increased the dividend twice in the past year, and 10 times in the past five years. (After raising the dividend every year from 1995 to 2008, BMO suspended dividend increases for a few years in response to the financial crisis but never reduced the dividend.)

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Bank of Montreal is growing steadily through acquisitions and expansion into the U.S., and EPS have growth in each of the last five years. Going forward, analysts expect EPS to grow by mid-single-digits annually. BMO trades at a P/E of 12 and the company has kept its dividend payout ratio at or below 50% for the past five years. For long-term investors, BMO is a reliable way to generate income year after year.

Top Canadian Dividend Stock #2: The Bank of Nova Scotia (BNS)

The Bank of Nova Scotia, which also goes by Scotiabank, is Canada’s third-largest bank. Since 2008, growth has focused primarily on international expansion, and about half of revenues now come from global and international operations. Revenues and EPS have grown every year since 2008, and growth in both has averaged 6% in each of the last five years. Analysts expect EPS growth to continue to average about 6% per year going forward, after slightly-better-than-average growth (around 8%) this year.

Like BMO, Scotiabank often increases its dividend more than once a year, and growth has averaged 7% per year over the past five years. There were no dividend increases in 2009 or 2010, but Scotiabank upped the dividend every year since, and kept the dividend payout ratio under 51% every year since 2009. BNS currently yields 3.8% and trades at a P/E of 13 and a forward P/E of 12. BNS is a good choice for a relatively high and steadily rising income stream.

Top Canadian Dividend Stock #3: Canadian Imperial Bank of Commerce (CM)

Another of the “Big Five” Canadian banks, Canadian Imperial Bank of Commerce, or CIBC, was named the strongest bank in North America in 2012. About 60% of net income currently comes from its Canadian retail and business banking customers. The company has paid dividends since 1868, and currently yields 4.7%. Like its peers, CIBC often delivers more than one dividend increase a year if cash flow is growing steadily. Over the past five years, the dividend has grown by an average of 7% per year. CIBC has kept the dividend payout ratio under 50% since 2011.

Revenues have grown every year since 2008, averaging about 9% per year. Analysts expect sales and EPS to continue growing by single-digits in the coming years. EPS are expected to rise 7% this year and to be about flat in 2018, with growth averaging 3% over the next five years. Due to a big pullback in 2015, CM is a little less expensive than its peers, trading at a P/E of 11. In fact, the stock’s lack of progress over the past decade could make CM a more attractive choice for value investors.

Top Canadian Dividend Stock #4: Canadian National Railway Company (CNI)

Montreal-based Canadian National Railway is Canada’s largest railroad. Formerly a holding of the Canadian government, CNI was privatized in 1995. The company’s freight network covers most of southern Canada, stretching from the Pacific coast of British Columbia to the Atlantic coast of Nova Scotia. Since its 1998 acquisition of Illinois Central, the company has also operated in the U.S., where its network stretches from Minnesota to Louisiana.

EPS have grown every year since 2009, by an average of 11% per year. Analysts expect EPS to rise by about 10% in each of the next two years, and to average 7% over the next five years.

CNI yields 1.6% today, and has increased its dividend every year since 2013. The stock’s payout ratio is usually below 30%, though it’s currently 32%. CN is a good choice for long-term income and growth investors.

Top Canadian Dividend Stock #5: Canadian Natural Resources Limited (CNQ)

Calgary-based Canadian Natural is an oil and gas exploration, development and production company. The company has been Canada’s largest conventional oil producer since 2011. Most production is in Canada, but the company also has fields in the North Sea and off the coast of West Africa.

CNQ has paid dividends since 2001 (the year after its IPO), but its dividend growth history is mediocre, with long periods of stagnation. CNQ’s payout ratio is also more volatile than is ideal, ranging from 4% to 235% over the past decade. The high point came only a couple of years ago, when the oil price crash nearly halved revenues and flipped Canadian Natural’s EPS negative.

So CNQ is less reliable than the other stocks on this list, given the company’s exposure to energy prices. But analysts expect revenues to rise a whopping 53% this year, followed by equally impressive 22% growth next year. Over the longer-term, growth should return to more typical levels, with EPS growth averaging about 4% per year. For medium-term investors who can tolerate some volatility, the stock’s current yield of 2.4% may be attractive.

You can read Part 2 of this post here.

Timothy Lutts

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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 conditions

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*This post has been updated from an original version published in 2017.

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