The recent stock market correction represents an opportunity to invest in quality Canadian securities at attractive prices. If you’re an investor looking to build a dividend portfolio, a good place to start is the Dividend Aristocrats list. In this article, we’ll be looking at 7 best dividend stocks to buy and hold right now. The selected stocks are near their 52-week lows and are part of the ‘Dividend Aristocrats’. We will review key financial indicators including several popular ratios. Finally, we will discuss the following securities in detail: Royal Bank, TD Bank, Enbridge and BMO.
Note: This list is only a starting point for further research and not a purchase recommendation.
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The most important criterion is that the stock is a ‘Dividend Aristocrat’. That is to say a company known to pay and increase its dividends from year to year. To be part of the Canadian Dividend Aristocrat, a company must have paid and increased its dividends for at least 5 years in a row.
The list of “Dividend Aristocrats” is managed by the firm Standard and Poors. The index is titled S&P Canadian Dividend Aristocrats. It requires a minimum of 5 years of successive dividend increases. For the full list of Canadian Dividend Aristocrats stocks, please follow the link here.
Other criteria used are listed below:
- Price close to the lowest price in the past 52 weeks
- Dividend yield above 4%
- Reasonable Price / Earnings Ratio
- Low dividend payout ratio and sustainable dividends
- Beta less than 1.5
- Analyst consensus
Best Dividend Stocks to Buy and Hold
Current price vs 52 weeks low and high
As you can see the list is dominated by financial stocks especially the big banks. The Canadian banking sector is among the most stable in developed economies. Canadian banks are also mostly ‘Dividend aristocrats’ with a history of paying and increasing their dividends year after year. In addition, the gradual increase in the prime rate by the central bank can only benefit banks in the short and medium term.
In the short to medium term, banks tend to pass on any increase in the cost of credit to their customers quickly, but interest on deposits follow much more slowly. This practice allows banks to improve their profits in the short term. Another strength of Canadian banks is their long-term growth potential. So, in addition to having access to a decent dividend income, one can expect to benefit from a long-term capital gain.
We also note the presence in the list of one non banking stock: Enbridge. Enbridge is a company with stable cash flows thanks to the business model specific to the Gas transmission industry (long-term contract with price fixed in advance and minimum quantity to be delivered guaranteed). The dividends of Enbridge is considered by analysts to be sustainable.
|MFC -Manulife Financial Corp||12|
|RY -Royal Bank of Canada||10|
|BMO -Bank of Montreal||11|
|BNS -BNS Bank||11|
|TD -TD Bank||10|
|ENB -Enbridge Inc.||27|
Financial ratios and comments
As you can see in the tables below, the valuation of Canadian banks seems adequate. the Price to Earning multiple is around 10, which could represent a buying opportunity. The ratios that assess the ability to maintain dividends are all excellent. Dividend payout ratios are sustainable being below 60%.
Enbridge has a very high dividend payout ratio. It pays almost all of its cash flow in dividends. So there is little potential for growth.
According to analysts, the business model of Enbridge makes its dividend sustainable in the long term.
- P/E: Price to earnings ratio
- Total Cash per Share: total cash divided by the number of shares
- Payout Ratio: Dividend payout ratio (Dividend divided by the company’s earnings)
- ROE: Return on Equity. That is to say, as a shareholder, what is your return on the equity you have invested.
- Beta: Measure of volatility, for example a Beta of 0.5 means that historically when markets have fallen by 10%, a stock with a Beta of 0.5 will fall by 5% on average (less sensitive to the market’s mouvements)
Table 4: updated daily – best dividend stocks to buy and hold
Table 5: updated daily – best dividend stocks to buy and hold
TD is listed on the Toronto Stock Exchange (TSE). It’s a dividend aristocrat stock with 10-year consecutive dividend increases!
This major canadian bank has a very good track record of growth throughout its 100 year history. Their revenue and EPS have been steadily growing 4-5% per year for the past 5 years. They are actively working to grow their digital presence and are implementing several strategies to increase their revenue across their top three business lines.
TD is also forming a strategic alliance with several leading companies (e.g., Amazon (NASDAQ:AMZN) and Starbucks (NASDAQ:SBUX) to better connect with retail customers. They have also recently acquired several key businesses (p. Headlands Tech Global in 2021) to enhance their global reach.
Dividend growth over the past five years has been 7.91%. This is very good news for any investor. The continued increase in dividends helps investors cope with the impact of inflation.
Enbridge is one of the largest operators of pipelines and midstream energy infrastructure (Midstream) in North America. The company is listed on the Toronto Stock Exchange (TSX) under the symbol ENB. The title is recognized as a ‘dividend aristocrat’ i.e. a company that has a long history of increasing these dividends.
- transports approximately 25% of all crude oil produced in North America
- Exports approximately 65% of Canadian production to the United States;
- transports approximately 20% of all natural gas consumed in the United States with an extensive pipeline network that spans approximately 23,850 miles
- provides natural gas utilities in Canada with 3.8 million metered connections in Ontario and Quebec serving more than 15 million people
The graph below demonstrates that the company’s cash flow continued to grow even during the 2008 financial crisis or more recently the pandemic. Over the last 5 years, the dividend has increased by 9.52%.
Enbridge makes its money by transporting crude oil, natural gas and related compounds through its pipelines and charging fees based on the volume of resources transported. Volume billing immunizes the business against fluctuations in commodity values.
Enbridge conducts all of its operations under long-term contracts that should remain in place despite any short-term economic problems. These contracts contain what are known as minimum volume commitments, which specify a certain minimum amount of resources that the customer must receive through the company’s pipelines or pay for anyway. These minimum volume commitments help ensure that Enbridge will be able to maintain cash flow even if production declines.
Bank of Montreal offers diversified financial services primarily in North America.
- The strength of their capital market segment makes them less vulnerable to a downturn in Canadian real estate.
- BMO has the highest return on equity among Canadian banks.
- BMO is recognized in the Canadian banking industry for the sustained growth of these non-interest revenues.
- The dividend payout ratio is only 30% which means that the risk of the bank lowering its dividend is quite low.
- BMO’s track record of net income growth and low dividend payouts present the safety of dividends.
- BMO is a good buy for income-seeking investors who want to hold securities for the long term.
- Dividend growth over the past five years has been 4.51%.
Royal Bank of Canada is a Canadian multinational bank and the largest bank in Canada by market capitalization. The bank has $1.690 billion in assets, about 86,000 employees along with 1,300 bank branches and almost 4,400 ATMs and is, without a doubt, one of the largest and most successful banks in the world.
- Royal Bank of Canada operates in five segments, allowing it to generate profits in a variety of ways in different market environments.
- Royal Bank shares offer an attractive yield of 3.89%. The dividend represents 43% of the results. The company has increased its dividends for 10 consecutive years, a sign of a solid financial situation.
- Dividend growth over the past five years has been 5.92%. This is very good news for any investor. The continued increase in dividends helps investors cope with the impact of inflation.
- Beta is a measure of volatility. Royal Bank’s Beta is 0.72, which means the stock is less volatile than the broader market.