As far as investment methods go, investing in stocks is one of the best ones out there.Dividend stocks are a great investment. Investors are quick to buy high yielding stocks, especially during times of volatility. Some people may call this yield chasing. However, when it comes to dividend stocks, dividend yield isn’t the most important metric to consider. If you are close to retiring or a retiree, maybe the quick yield payout is beneficial to you, but if you are a younger investor, dividend growth is more important in terms of future dividends. Dividends are one of the best ways to invest money in Canada.
As just mentioned, if you are retired or close to, you don’t have the time needed for a company to grow the dividend anymore. In which case, you have no option but to favour the dividend yield. However, if you are a young investor, dividend growth is a metric that will compound over your life and produce massive amounts of gains. This creates almost a triple compounding effect. As the share price rises, you compound that growth. If you reinvest the dividend, you compound that growth. As the dividend grows, that compounds as well. This compounding can make you a lot more money than just capital appreciation. As you might have figured out by now, dividend stocks are a great way to invest your money. In this post, we will talk about the best dividend stocks in Canada for you to invest your money in. We will also talk about certain popular and key terms associated with the world of dividend investing. Let’s get started.
The Best Dividend Stocks in Canada 2020
This is a list of some of the strongest dividend growth companies in Canada. The firms in this list have shown impressive growth and have reasonable metrics to go along with it. Let’s get it started.
Enghouse Systems Limited
Enghouse Systems Limited (TSX:ENGH) is a publicly traded Canadian based software and services company founded in 1984. Enghouse provides service to a wide gamut of distinct vertical markets with three divisions. Each division develops and sells enterprise oriented solutions.
Market Cap – $2.241 billion
P/E – 27.7
Payout Ratio – 39%
Dividend Yield – 1.37%
3 Year annual dividend growth rate – 20.69%
5 Year annual dividend growth rate – 19.28%
Canadian Pacific Railway Limited
Canadian Pacific Railway Ltd. (TSX:CP) as the name suggests provides railway service, especially across the Pacific coast of Canada. The firm provides rail and intermodal transportation services. The firm also deals with transporting bulk commodities, merchandise freight, and intermodal traffic. Canadian Pacific Railway Limited was founded in Calgary, Canada in 1881 and has its current headquarters there itself.
Market Cap – $41 billion
P/E – 15
Payout Ratio – 18%
Dividend Yield – 1.11%
3 Year annual dividend growth rate – 18.83%
5 Year annual dividend growth rate – 18.57%
Goeasy Ltd. (TSX:GSY) is a famous Canadian which has its headquarters in Mississauga, Ontario. Goeasy’s easyhome and easyfinancial divisions provide great non prime leasing and lending services. Goeasy has a wide variety of financial products and services in its stable. The firm aspires to help Canadians build a better future for themselves by providing financial products and services including unsecured and secured instalment loans. Goeasy wants Canadians to rebuild their credit and move on to prime lending. Customers also have the option to transact with easyhome and easyfinancial via an omnichannel model. The company also has more than 400 leasing and lending locations spread all over Canada. Those locations are supported by 2,000 employees spread across Canada. Throughout the history of the firm, goeasy has served more than 1 million Canadians. The firm has given out over $3.9 billion in loans. One out of three customers have graduated to prime credit levels. Over 60% registered an increase in their credit score within just 12 months of borrowing. The company and its employees believe strongly in giving back to the communities in which it operates and has raised over $2.7 million to support its long-standing partnerships with the Boys & Girls Clubs of Canada and Habitat for Humanity.
Market Cap – $529 million
P/E – 30
Payout Ratio – 30%
Dividend Yield – 6.29%
3 Year annual dividend growth rate – 34.28%
5 Year annual dividend growth rate – 30.31%
CCL Industries Inc.
CCL Industries Inc. (TSX:CCL.B) has a workforce of 21,000 people who work from more than 180 facilities spread across 40 different countries. The corporate offices of CCL are located in Toronto, Canada, and Framingham, Massachusetts. CCL also happens to be the world’s largest converter of pressure sensitive and specialty extruded film materials for a wide range of decorative, instructional, functional and security applications. These are used for government institutions and large global customers in the consumer packaging, healthcare & chemicals, consumer electronic device and automotive markets. Extruded & laminated plastic tubes, aluminum aerosols & specialty bottles, folded instructional leaflets, precision decorated & die cut components, electronic displays, polymer bank note substrate and other complementary products and services are sold to specific end-use markets as well. Avery happens to be the world’s largest supplier of labels, specialty converted media and software solutions. Those are mainly used for short-run digital printing applications for businesses and consumers. These are available alongside complementary products sold through distributors, mass market stores and e-commerce retailers. Checkpoint is one of the world’s leading developers of RF and RFID based technology systems for loss prevention and inventory management applications. These applications include labeling and tagging solutions for global retail and apparel industries. Innovia is a world leading producer of specialty, high-performance, multi-layer, surface-engineered films for label, packaging and security applications. The Company is partly backward integrated into materials science with capabilities in polymer extrusion, adhesive development, coating & lamination, surface engineering and metallurgy, deployed as needed across the four business segments.
Market Cap – $6.484 billion
P/E – 11.9
Payout Ratio – 25%
Dividend Yield – 1.89%
3 Year annual dividend growth rate – 38.69%
5 Year annual dividend growth rate – 22.23%
Alimentation Couche-Tard Inc
Alimentation Couche-Tard, Inc. (TSX:ATD.B) engages in the operation of independent convenience stores. The firm sells goods that are primarily for immediate consumption. Goods such as road transportation fuel, and other products mainly through company-operated stores and franchises stores. The firm operates under the brands of Circle K, Ingo, and Couche-Tara. The company was established in the year 1980 by Alain Bouchard, Jacques D’Amours, Richard Fortin, and Réal Plourde. The company’s headquarters are located in Laval, Canada.
Market Cap – $29.232 billion
P/E – 12.6
Payout Ratio – 10%
Dividend Yield – 0.82%
3 Year annual dividend growth rate – 13.44%
5 Year annual dividend growth rate – 22.19%
Waste Connections Inc.
Waste Connections (TSX:WCN) is an integrated solid waste services company that deals with non-hazardous waste collection, transfer, disposal and recycling services. The firm chiefly deals with mostly exclusive and secondary markets in the United States of America and Canada. Waste Connections is also a leading provider of non-hazardous oilfield waste treatment, recovery and disposal services in several of the most active natural resource producing areas in the United States of America. These areas include the Permian, Bakken and Eagle Ford Basins. Those services are provided by its R360 Environmental Solutions subsidiary. Waste Connections has a client base of more than seven million, spread across residential, commercial, industrial, and exploration and production sectors in six Canadian provinces and 42 American states. The firm also provides intermodal services to help with the movement of cargo and solid waste containers throughout the Pacific Northwest.
Market Cap – $26.8 billion
P/E – 33.8
Payout Ratio – 31%
Dividend Yield – 0.90%
3 Year annual dividend growth rate – 17.34%
5 Year annual dividend growth rate – 16.57%
Canadian National Railway
CN (TSX:CNR) is a world-class transportation leader and the only transcontinental railway in North America. The firm’s mammoth 19,600-mile rail network spans Canada and Mid-America. It connects three strategically important coasts: the Atlantic, the Pacific and the Gulf of Mexico. Canadian National railway offers fully integrated rail and other transportation services. Those services include intermodal, trucking, freight forwarding, warehousing and distribution.
Market Cap – $76 billion
P/E – 16.8
Payout Ratio – 37%
Dividend Yield – 2.11%
3 Year annual dividend growth rate – 12.5%
5 Year annual dividend growth rate – 15.52%
Gildan Activewear Inc
Gildan Activewear, Inc. (TSX:GIL) engages in the manufacture and sale of printwear and branded apparel. Its products include activewear, underwear, socks, hosiery, and legwear.Gildan, American Apparel, Comfort Colors, Gold Toe, Anvil, Secret, Silks, Kushyfoot, Peds, and Mossy Oak are the brand names associated with the firm. Gildan Activewear was established on May 8th, 1984 by Glenn J. Chamandy and H. Gregory Chamandy. The headquarters of the firm are located in Montréal, Canada.
Market Cap – $3.454 billion
P/E – 9.4
Payout Ratio – 42%
Dividend Yield – 4.97%
3 Year annual dividend growth rate – 19.77%
5 Year annual dividend growth rate – 20.12%
Dividends: Popular terms and their explanations
Looking at the great Warren Buffett, his acquisition in Coca Cola early in his life gave him many years of triple compounding growth, which led him to great wealth. This is because Coke had increased its dividend for over 50 years, making them what’s known as a ‘dividend king’. His gains from Coke also gave him what’s known as a large yield on cost, which I will dive into later.
Historically, dividend paying companies produce greater returns than non dividend paying companies. Because of this, many investors flock to great dividend producing companies, such as dividend aristocrats and kings.
Dividend Kings and Aristocrats
To be considered a dividend aristocrat, you must be a member of the S&P 500 index, increase your dividend for 25+ years, and meet volume requirements. A dividend king must do all this but raise the dividend for 50+ years.
Buying and holding these stocks, especially during their early years, will give you great returns as you will be provided with a great yield on cost, which will be useful as you approach retirement.
Canadian companies that are about to become dividend kings:
- Canadian Utilities (48 Years)
- Fortis (46 Years)
These are just a few of the dividend kings.
Dividend aristocrats include:
- Bank of Nova Scotia
- TC Energy Corp
- BCE Inc.
- TD Bank
These companies are great dividend growers and are staples of many investor portfolios.
What is Yield on Cost?
Younger investors should favour a company’s dividend growth as opposed to their dividend yield as over the course of their life, it will provide them with a great ‘yield on cost’. Yield on cost is a measurement of the dividend yield that is calculated by dividing the current dividend by the initial share price.
For example, if your stock has a current annual yield of $2 dividend per share, and your initial purchase was at $4, you would have a 50% yield on cost.
Dividend growth companies can be great investments for long term investors as it can result in a very high yield on cost, or even yields that are higher than the initial share price itself.
Something to keep in mind is not to compare your yield on cost to another stock’s current dividend yield, as these are two different metrics. Instead, you must compare the current dividend yields of the two companies. Additionally, you must add all of your purchases into your calculation, as you will get a greatly different number if you leave any purchases out.
When analysing a potential position you would like to create, it is important to analyze a few key metrics.
- Market Cap
- P/E ratio
- Payout ratio
- Dividend Yield
- 3 Year annual dividend growth rate
- 5 Year annual dividend growth rate
These metrics are important as it will help you decide if the company is worth the purchase, based on its current metrics, as well as the future growth that can be expected.
Best dividend stocks in Canada: Conclusion
If you are a young investor, it would be more valuable to focus on dividend growth instead of yield, as you have many years ahead of you in order to compound the dividend growth and get a high yield on cost.
To achieve this, it is imperative that you look at certain metrics such as market cap, P/E ratio, payout ratio, current yield, and the 3 and 5 year annual dividend growth rate. These metrics will lead you in the right direction to picking a high returning stock pick and a high yield on cost for long term investors, as well as a stock that can produce a high dividend payout when approaching retirement. Invest in one or many of the best dividend stocks in Canada and start building a bright financial future for yourself today.