Long-term investors in particular will find a plethora of high-quality, highly consistent dividend stocks in Canada, notes income expert Chloe Lutts Jensen. Recently, the editor of Cabot Dividend Investor reviewed 5 of her favorites; here, she highlights the rest of her top ten Canadian dividend ideas.
Using dividend histories, earnings records and dividend payout ratios, I’ve compiled a list of the top Canadian dividend stocks to buy today.
Calgary-based Canadian Pacific Railway (CP) owns about 12,400 miles of track, stretching from Vancouver to Montreal and down to Minneapolis, Chicago and Kansas City. About 22% of traffic is intermodal, 24% is grain, 14% is energy products and chemicals, and 10% is coal.
Though it was founded in 1881, Canadian Pacific went through a restructuring in 2001, so its dividend history is limited. Plus, CP only yields 1% and boasts only two recent dividend increases; the dividend was unchanged from 2012 to 2016 as management pursued an ambitious turnaround plan. But the dividend payout ratio remained under 50% throughout the turnaround, and has been below 20% for the past two years.
Plus, the turnaround has left CP in much better shape going forward, with a lower cost basis and higher cash flow. CP’s fleet is 15% more fuel-efficient than it was five years ago, and trains are on average 21% longer.
These improvements are expected to contribute to 11% EPS growth this year and 13% growth next year. Over the next five years, EPS growth is expected to average about 13%. Forward-looking investors can expect good dividend growth from CP.
Founded in Montreal in 1984, Gildan (GIL) is one of the largest apparel manufacturers in the world. Most of Gildan’s blank t-shirts, sweatshirts and other basics are sold to screen printers in the U.S. and Canada.
The company acquired the American Apparel brand in a bankruptcy auction earlier this year, further cementing its position as the dominant supplier of “printwear.” The company also makes socks for a number of brands, including Gold Toe, Under Armour and New Balance. Revenues have increased every year since 2009, and are expected to grow about 5% this year and next.
Gildan has only paid dividends since 2011, and boasts only a five-year history of dividend increases. But those five increases have averaged 20% each, plus the company paid a special dividend in the first quarter of 2015. And the company’s payout ratio is low, at 22%, so there’s plenty of room for growth.
Analysts expect EPS growth of 13% this year and 11% next year, but long-term growth is expected to be even higher, averaging 15% over the next five years. Investors who like dividend growth can expect it from 1.3%-yielding Gildan.
Magna International (MGA) is the largest North American manufacturer of auto parts. General Motors, Ford, Chrysler, Tesla, Volkswagen, BMW and Toyota are all major customers.
Magna has paid dividends since 1992, but suspended the dividend for a year in 2009. Dividend payments were resumed—at the same level—in 2010, and Magna has increased the dividend every year since, by an average of almost 30% per year. At the current rate of 28 cents per quarter, MGA yields 2%.
Analysts expect revenues to rise 6% this year and 8% next year, fueling 14% and 10% EPS growth. Over the next five years, EPS growth is expected to average 11% per year. Magna’s payout ratio is only 19%, so there’s plenty of room for the dividend to grow.
The second-largest Canadian bank, Royal Bank of Canada was founded in 1864, but has only paid dividends since 1996. Management has increased the dividend twice a year since 2011, with the growth rate averaging 8% per year.
Since the financial crisis, Royal Bank of Canada (RY) has pursued growth primarily by expanding its offerings beyond retail banking. The bank now has operations in wealth management, insurance, capital markets and treasury services for institutional investors, as well as personal and commercial banking.
Today, personal and commercial banking accounts for 50% of earnings, followed by capital markets at 22% and wealth management, the fastest-growing segment, at 15%.
In 2015, Royal Bank bought U.S.-based City National, a private and commercial bank, to expand its wealth management and capital markets presence south of the border. Approximately 23% of revenues now come from the U.S., 17% from other international markets, and 60% from Canada.
Revenues have increased every year since 2010, and EPS every year since 2009. Going forward, analysts expect EPS growth to average 6% a year, including 10% growth this year followed by a return to more average growth next year. Investors looking for slow but steady dividends growth will find a lot to like with RY.
Canada’s largest bank, Toronto-Dominion Bank (TD) was created by the 1995 merger of Bank of Toronto and The Dominion Bank. Canadian retail banking accounts for 59% of net income, and U.S. retail banking for another 23%. The remainder of income comes from wholesale banking operations (10%) and the company’s stake in TD Ameritrade (4%).
TD has paid dividends every year since the 1995 merger, and has increased the dividend every year since 2001. Dividend growth was halted for a few years after the financial crisis, but the highest the dividend payout ratio got was 65%, and the dividend was never reduced. Since 2010, TD has kept the payout ratio under 50%.
EPS have increased every year since 2009, by an average of 13% per year. Analysts expect EPS growth to average about 7% over the next five years. This year and next, revenues are expected to rise about 2% and 5%, fueling 14% and 6% EPS growth. TD is another solid pick for investors looking for reliable income and slow but steady dividend growth.
Chloe Lutts Jensen is editor of the Cabot Dividend Investor.
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