20 Best Canadian Dividend Stocks to Invest in 2021

Investing in Canadian dividend stocks is an assuring way to grow your wealth and achieve financial independence in the long term.

Dividend stocks are an excellent choice when you’re looking for regular, reliable, and growing income that will enable you to reinvest more money in your portfolio.

Anyone can invest in dividend stocks. But not everyone knows how to invest. This is because it goes beyond having the capital and identifying the best dividend stocks to invest in.

When you’re considering investing in the best Canadian dividend stocks, there are a couple of things you have to consider.

Here we cover everything you need to know before investing in dividend stocks to help you make an informed decision on your investment.

Let’s start by first understanding what dividends really entail.

What is a Dividend?

What is a Dividend - Best Canadian Dividend Stocks

A dividend is a portion of a company’s profits paid to its shareholders. Since dividends are paid out of earnings, the amount you receive per share will be impacted by how much profit the company makes.

The dividend payout is decided by the company’s board of directors and is based on earnings, profitability, and other factors such as dividend history and projected growth for the future.

A company can decide to pay dividends quarterly or after the end of a financial reporting period.

The dividends payout ratio is a metric that shows what percentage a company pays out in dividends.

The higher the payout ratio, the bigger the dividend will be for shareholders the following year.

Not all dividends are created equal, however. Some are considered healthy, while others can be unhealthy and even dangerous to your investment.

This is why it is important you know the type of dividend to invest and where to invest.

Let us now look at the various types of dividends in the market.

5 Popular Types of Dividends

There are two major types of dividends, namely: cash dividends and stock dividends. Other types of dividends include property dividend, scrip dividend, liquidating dividend.

  • Cash Dividend

A cash dividend is a distribution of cash paid by a company out of its earnings to its shareholders.

The amount of cash dividend depends upon a company’s net profits and is determined by the board of directors.

The dividend can be part of its profit, or it can be issued out of its retained earnings.

Companies sometimes use cash dividends to maintain a consistent payout ratio from year to year despite fluctuations in net income and provide investors with regular income.

  • Stock Dividend

A stock dividend is a dividend payment made to shareholders in the form of additional shares.

This is in contrast to a cash dividend, where a distribution consists of money.

A stock dividend increases the number of holdings in your account without you actually having to buy more stocks.

For example, if a company offers a 5% stock dividend, its number of shares would increase by 5%. One million shares amount to 50,000 stock dividends to the shareholders.

If you owned one hundred shares of the company, you would get five more shares.

  • Property Dividend

Instead of making a cash or stock distribution to shareholders, a company may offer a non-monetary or assets dividend. This is referred to as a property dividend.

For example, a company may choose to share its assets with its investors as dividends. The company calculates the dividend based on the fair market value of the assets shared.

Given that the fair market value of the assets could not be the same as the book value, the company would most likely report the difference as a gain or loss.

This may lead to a company issuing property dividends on purpose to adjust their taxable or declared income.

  • Scrip Dividend

A scrip dividend is a certificate issued by a company to its shareholders, giving them the option of receiving dividends at a later date or taking shares in exchange as dividends.

Companies issue scrip dividends when they are not earning enough cash from operations to meet the dividend payment needs of their shareholders.

Scrip dividends are a way for companies to raise additional capital and, at the same time, reward their shareholders.

On the other hand, shareholders benefit by acquiring shares in their own company at a discounted price.

  • Liquidating Dividend

Liquidating dividends refer to the distribution of cash or assets to shareholders when a company is shutting down, relocating, or going through bankruptcy.

Since this dividend is paid only after all creditors and lenders have been paid, it is one of the last things before the company is closed.

This distribution can be legally required upon winding down or closing a business or by voluntary action of a corporation.

Liquidating dividend is typically made from the capital base of the company. This distribution is normally tax-free for shareholders since it is a return of capital.

4 Good Reasons to Invest in Canadian Dividend Stocks?

Before investing your money, you should understand the advantages of investing in dividend stocks and how they can benefit you.

  • Income Stream

If you’re looking for a way to create a sustainable income stream, dividend stocks might be the answer.

Investing in dividend stocks is one way to create an income stream that can add up to big numbers over time.

With a steady stream of income, you’ll create an income stream that’s more reliable than interest from bonds or other interest income investments.

Knowing how to pick stocks that grow their dividends creates a passive income stream that gives you funds to do the things you love.

  • Inflation Hedge

Inflation is one of the biggest risks you take when saving for the future, but you can counter this risk by investing in dividend stocks.

Dividend stocks provide capital appreciation when the market is on a bull run, unlike fixed-income investments.

Fixed-income assets have a significant drawback in that the income stream does not expand. For example, in just 24 years, even a 3% inflation rate would have eroded 50% of your money value.

Dividend stocks help to earn income that grows and retains its purchasing power.

  • Capital Preservation

One of the biggest reasons people invest in dividend stocks is that they seek capital preservation, especially during recessionary periods.

Companies that pay dividends are more profitable and mature compared to the average companies. Also, in down markets, dividend stocks normally perform better compared to speculative stocks.

When you have money in the bank, there is no guarantee that it will be safe. The central bank could decide to inflate prices beyond the rate at which the interest you receive follows.

Hence, inflation not only consumes your interest but your savings as well. The major step you can take to preserve your capital investment in dividend stocks.

  • Compound Returns

Dividend stocks offer compound returns as you reinvest your dividends to purchase more shares. This is a powerful way to grow your investment over time and get the highest possible returns.

Compounding your return help, you generate wealth at a much faster rate than your traditional savings account will allow.

Investing in dividend stock can provide you with extra returns from multiple angles. First, your investment grows due to the initial capital gain on your stocks,

Subsequently, it generates additional dividend payments on top of that growth by reinvesting your dividends.

What Makes the Best Canadian Dividend Stocks?

Choosing the stock with the greatest dividend potential can be challenging. It involves balancing several factors at once and making predictions.

Here are some of the key features of the best Canadian dividend stocks:

  • Long-term Earning History

One way to identify the best Canadian dividend stocks is by looking at the companies’ past earnings for at least five years.

This is because companies with a room can only sustain sustainable and rising dividends to grow.

A company’s earnings determine whether they can pay dividends or not, as well as the dividend rate.

Also, a company’s ability to deliver continuous dividend payments depends on its earnings’ sustainability. The best dividend stocks maintain positive and increasing earnings over time.

  • Strong Sash Flows

Canadian dividends stocks are viewed as a safe investment. That’s because they offer investors a reliable source of regular income in exchange for their capital.

However, some companies fail to pay dividends at all. While others often struggle to generate cash flows.

The best Canadian dividend stocks have strong cash flows to meet up to your entitled dividends as at when due.

By looking for dividends from well-established companies with plenty of cash reserves to cover their dividend payments, you’ll avoid disappointment and be confident in your financial security.

  • Low Debt-to-Equity Ratios

When looking for the best dividend stocks to invest in, another important factor to consider is the debt-to-equity ratio.

The debt-to-equity ratio is a ratio used in finance to see how much money a company uses for debt instead of its stock investment.

The higher the debt-to-equity ratio, the more risk a company uses to fund its operations, which could lead to increased volatility and problems in future years for the business.

Low debt-to-equity ratios can give you an edge on the competition and put you on the path of higher dividend yields.

  • Price Stability

If you have shares that are constantly dropping in price, then this is not a good investment.

It is essential to look for companies that give an attractive dividend yield and provide price stability so that you can remain invested in the company for years to come.

The best dividend stocks have price stability over an extended period of time amidst economic challenges.

This makes it easier for investors to look past the current market volatility and see its long-term potential.

What are the Best Canadian Dividend Stocks?

Canadian dividend stocks can help you achieve financial freedom, but there are many of them out there. Selecting the best ones may seem a daunting task. Not anymore.

Whether you’re looking to make your first stock investment or make some new investments, you need to understand the best dividend stocks to make the right choice for your portfolio.

Here are the best Canadian dividend stocks:

1. Alimentation Couche-Tard (ATD.B)

SectorConsumer Defensive
Dividend Yield0.87%
Dividend Payout Ratio10.8%
PE Ratio12.40
5 Year Dividend Growth Rate21.7%
Dividend Increase Streak11 years

Alimentation Couche-Tard is a major Canadian company that owns several convenience stores around the country.

In addition to providing road transportation fuel to nearly 1,300 locations throughout the United States, Alimentation Couche-Tard also provides stationary energy and aviation fuel.

Daily, this company serves more than 9 million consumers around the world with goods and services.

In the United States, Couche-Tard has approximately 10,000 branches across 48 states, with ten branches in Canada and other countries.

Couche-Tard has responded to evolving consumer tastes and desires through almost four decades of practice and has a track record of profitable acquisitions.

2. TD Bank (TD.TO)

SectorFinancial Services
Dividend Yield3.81%
Dividend Payout Ratio48.1%
PE Ratio12.63
5 Year Dividend Growth Rate9.8%
Dividend Increase Streak10 years

The Toronto-Dominion Bank is the fifth-largest bank in North America and one of Canada’s major banks.

TD Bank is a financial services company that operates online and has over 14 million clients. Its branches include Canada Retail, United States Retail and Corporate Wholesale Banking.

With over 2,300 retail stores across North America, TD has a significant retail reach. It’s no surprise that it has so many branches in Vancouver too.

Individuals, financial institutions, businesses, government, and non-governmental organizations may use the bank for banking, consulting, and discount brokerage services.

3. Canadian National Railway (CNR.TO)

Dividend Yield1.66%
Dividend Payout Ratio51.3%
PE Ratio30.82
5 Year Dividend Growth Rate13%
Dividend Increase Streak25 years

Canadian National Railway provides rail and transportation services with one of the lowest operating margins of all publicly listed railroad firms in the United States.

Although with a low dividend yield, the Canadian National Railway dividend growth trend has been reasonably good over the last five years.

It also has a 15.6% dividend growth rate for ten years, a 15.9% dividend growth rate for fifteen years, and a 16% dividend growth rate for 20 years.

Canadian National Railway regularly raises dividends to attract and maintain its shareholders. This way, a 10-year stock investment will yield a significant increase in the stock price and high yield.

4. National Bank (NA.TO)

SectorFinancial Services
Dividend Yield3.2%
Dividend Payout Ratio46%
PE Ratio14.37
5 Year Dividend Growth Rate8.5%
Dividend Increase Streak11 years

National Bank is Canada’s sixth-biggest bank. Its main market is Quebec, which accounts for 62% of its sales, but the bank has recently spread to the rest of the country.

National Bank has expanded by concentrating on wealth management and capital market, despite being a smaller bank than the Big Five Banks.

What’s more noteworthy than its solid organic dividend growth over the last ten years is the fact its stock price has risen steadily over the previous five years.

Accordingly, if you had purchased National Bank five years earlier, the stock price would have increased by more than 110%.

5. Telus (T.TO)

SectorCommunication Services
Dividend Yield4.76%
Dividend Payout Ratio99.5%
PE Ratio27.69
5 Year Dividend Growth Rate7.1%
Dividend Increase Streak17 years

Telus is one of Canada’s top three telecommunications firms, with headquarters in Vancouver, British Columbia.

Wireless and wireline voice and data are among the telecommunications services and products offered by the company.

The company has almost 11 million customers and has almost doubled its dividend annually since 2002.

Telus has been diversifying its business outside telecommunications by providing telehealth, television services and home security.

Telus should increase the level of service and even attract more customers as its 5G infrastructures come to life.

6. Algonquin Power & Utilities Corp (AQN.TO)

Dividend Yield4.04%
Dividend Payout Ratio44.7%
PE Ratio11.05
5 Year Dividend Growth Rate10.0%
Dividend Increase Streak10 years

Algonquin Power & Utilities Corp. is a diversified utility and renewal energy corporation in Canada with properties spread across North America.

Through its two operating divisions, Liberty Power and Liberty Utilities, Algonquin largely invest in utility, hydroelectric, solar power plants and wind.

Algonquin Power, a rapidly expanding renewable energy corporation, has a strong portfolio of long-term contracted solar, hydroelectric properties and wind totalling 1.5 GW of installed capacity.

Across North America, the company operates more than 50 power generation facilities and 20 utilities.

It also serves about 770,000 clients across twelve states in the United States.

7. Royal Bank (RY.TO)

SectorFinancial Services
Dividend Yield3.69%
Dividend Payout Ratio53.5%
PE Ratio14.49
5 Year Dividend Growth Rate7.9%
Dividend Increase Streak10 years

With over 620,000 customers, Royal Bank is Canada’s largest bank with diversified financial services.

The company offers personal and commercial banking, insurance, wealth management, investment services, and products and services for capital markets on a global scale.

In Canada, the United States, and approximately 40 other countries, Royal Bank serves personal, businesses, institutions and public sector clients.

Royal Bank segments include capital market, personal and commercial banking,

Since 1870, Royal Bank has been paying dividends to its shareholders. Also, the company’s dividend payment has been impressive for all these years.

8. Fortis (FTS.TO)

Dividend Yield3.8%
Dividend Payout Ratio77.6%
PE Ratio20.45
5 Year Dividend Growth Rate 6.8%
Dividend Increase Streak47 years

Fortis Inc. is a holding company for electric and gas utilities based in Canada. Regulated Utilities and Non-Regulated Utilities are two of the company’s divisions.

Arizona, Alberta, British Columbia, Ontario and New York, at just a few of the places Fortis serves.

Because of its long dividend raise streak and steady generation of sustainable cash flow, we included Fortis as one of the best Canadian dividend stocks.

Fortis dividends can be compared to bond interest in Canada. This is because, besides cooking, several Canadians use electricity or natural gas to heat their homes, making Fortis a reliable stock to invest in.

9. Intact Financial (IFC.TO)

SectorFinancial Services
Dividend Yield2.21%
Dividend Payout Ratio45.5%
PE Ratio20.62
5 Year Dividend Growth Rate9.4%
Dividend Increase Streak16 years

Intact Financial is an insurance service provider. It offers home and business insurance products such as personal auto, commercial auto, and personal property.

Over the last few months, the PE ratio has dipped significantly. For some dividend investors, however, the stock may be slightly overpriced around a 20 PE ratio.

However, some stocks would remain costly. Based on its historical price changes, the stock price of Intact Financial has been relatively steady since the financial crisis.

Intact Financial has given a 68.27% return over the last five years. Hence, we chose Intact Financial as one of the best Canadian dividend stocks because of its strong stock price appreciation.

10. Brookfield Renewable Corp (BEPC.TO)

Dividend Yield2.75%
Dividend Payout Ratio63.4%
PE Ratio28.7
5 Year Dividend Growth Rate7.7%
Dividend Increase Streak10 years

Brookfield Renewable Corp. is a Canadian company aimed to give investors more flexibility in accessing BEP’s diversified portfolio of high-quality renewable energy assets globally.

Brookfield Renewable Corp is one of the world’s largest renewable energy networks, with a portfolio of 19,00 MW of installed capacity spread throughout Europe, Asia, Latin America and North America.

Despite the economic setbacks in 2020, the stock price of Brookfield Renewable Corp increased by over 45%.

BEPC’s stock has been on the decline in recent months, making it a decent entry point for investors seeking to add it to their portfolio.

Despite the low dividend yield, Brookfield Renewable Corp has been steadily increasing its dividend payouts.

Because of the macro renewable energy change and BEPC’s position as a global leader in renewable power platforms, including BEPC in your dividend portfolio will pay off in the long run.

How To Invest in Dividend Stocks in Canada?

Investing in dividend stocks can be a tricky endeavour. But it doesn’t have to be. The following are the steps you need to take to invest in dividend stocks with limited risk:

Step 1: Find Dividend Stocks

The first step of investing in dividend stocks in Canada is finding a company that pays you dividends and has a strong track record of growing its dividend over time.

Luckily, we’ve already done the hard work for you above by identifying the best Canadian dividend stocks you can invest safely and profitably.

You can now speedily move to the next step.

Step 2: Evaluate the Stock

You shouldn’t invest in stock only because it pays a high dividend or appears on a list of high-dividend-paying firms. Any stock you intend to add to your portfolio should be thoroughly evaluated.

Take a look at the company’s main competitors. It might not be a positive indication if the dividend it pays is substantially higher in percentage than its rivals.

It may be a sign that investors have lost faith in the firm. If this is the case, they could be selling shares, lowering the share price while increasing the dividend rate.

The dividend payout ratio is another crucial factor to consider. This is the amount of money paid out in dividends as a percentage of the company’s net profits.

It should be no more than the industry’s average dividend yield and definitely not more than 80%.

If it’s higher, it could indicate that the business is sacrificing potential growth to favour current earning. As a result, it could not be a high-dividend stock for long.

Step 3: Determine How Much You Can Invest

You don’t want to purchase too many stocks that will dent your savings, so you need to know how much you can afford to invest.

You should diversify your investment, as you should for any other type of investment.

Just because a stock pays a 5% dividend doesn’t guarantee that you can profitably invest 30% or 40% of your profit in it.

Dividends are never guaranteed because a company’s fate can change at any time. As a result, diversify your dividend-paying stock portfolio.

Plan to invest in a minimum of 10 individual stocks and up to 20. Spread them out across different sectors so that your portfolio isn’t too dependent on a single sector.

In general, you can invest a percentage of your portfolio in each stock.

For example, if you intend to invest in ten stocks, each should account for approximately 10% of your total portfolio. Reduce the percentage for any stock that poses an additional risk.

A more than 4% or 5% dividend could indicate that the company’s prospects are shaky, and the stock price is about to drop. You’ll want to invest a smaller portion of your money in that company.

Step 4: Purchase the Stock

Upon determining how much you want to invest, the next step is to invest.

It is possible to buy stock via a direct stock purchase plan (DSPP), even though it is not common.

DSPs are not available at every company, but they’re more popular at larger, more developed companies. They allow you to buy stock directly from the company, usually without paying any fees.

Most preferably, you’ll want to buy dividend stocks from well-known brokerage firms that don’t charge transaction fees.

Although you can miss out on any DSPP offers, a brokerage account gives you the benefit of managing all your dividend stocks on one platform.

It will be easier for you to purchase, sell, and track your positions due to this.

Bonus Step: Track Your Dividends

Never presume that dividends will last indefinitely! A company’s dividend may be reduced or even eliminated.

Even if a corporation has paid dividends for decades, there’s no guarantee there won’t be a negative shift at some point in the future.

Dividend reductions are announced publicly by companies. However, in today’s information-overloaded world, you may miss the announcement.

That’s why you can double-check your dividends every time they come in. This comprises both the sum of the dividend payment and the dividend yield percentage of the main purchase price.

How to Calculate Dividend Yield?

The dividend yield is an estimate of your expected return from a stock investment.

When the dividend is not lowered or increased when a stock drops, the yield will increase.

On the other hand, it will drop when the stock price goes up. A dividend yield that goes up when a stock drops is an unusually high yield for the time period it takes to decrease in value.

By calculating the dividend yield, you can compare different stocks and determine the best.

Thankfully, it is simple to calculate the dividend yield. All you need is to apply the following formula:

Dividend yield = annual dividend of a share/market value of a share

The dividend amount is what a company pays in dividends each year, while market value refers to a company’s current share or stock price.

You can also use a dividend yield calculator to determine the dividend yield of your stock investment accurately.

Bottom Line

Dividend stocks are one of the most popular investments today. They provide an extremely consistent source of income and can produce compound returns which creates significant wealth for investors who stay invested for a long period of time.

Dividend stocks add stability to your investment portfolio. They help you in achieving long-term financial goals and act as a hedge against inflation.

It doesn’t matter what your background or how many years of experience you have in trading stocks.

If you don’t know what a company is making, as well as how much cash it’s producing per quarter and where it’s investing that money, you can easily throw money away.

Now that we learn the game rules investing in dividend stocks in Canada should be easy and done with limited risk.

What next? Let us know on the comment box which of the above best Canadian dividend stocks is suitable for your investment portfolio.

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