My Favourite Canadian Dividend Stocks

My Favourite Canadian Dividend Stocks

This is a guest contribution by Nick McCullum of Sure Dividend. Sure Dividend uses The 8 Rules of Dividend Investing to systematically identify high-quality dividend stocks suitable for long-term investment.  Sure Dividend is a fan of My Own Advisor.

Like Mark, I believe the Canadian stock market is an attractive place to find high-quality dividend stocks.

In particular Canada’s financial, telecommunications, and energy sectors stand out for having high-yield, large-cap stocks with durable competitive advantages and strong growth prospects.

Thanks to a tax treaty between the United States and Canada, Canadian stocks held in U.S. 401k accounts are not subject to the typical 15% withholding taxes.  For Canadian investors, domestic dividend stocks can be fantastic investments because they allow us to take advantage of the dividend tax credit (in a non-registered account Mark wrote about here).  This makes Canadian dividends a great source for tax-efficient passive income.

This article will analyze my three favorite Canadian dividend stocks, which are also the top three ranked stocks according to The 8 Rules of Dividend Investing. Each of these stocks are cross-listed on the Toronto Stock Exchange and the New York Stock Exchange, making them suitable holdings for investors on either side of the border.

Enbridge Inc. (ENB)

Enbridge (ENB) is the largest midstream energy company in Canada with a market capitalization of $86 billion.

Recently, this energy giant expanded tremendously via its merger with U.S.-based Spectra Energy (SE). The acquisition, which closed on February 27, took Enbridge’s market capitalization from ~$52 billion to its current level of $86 billion, and increased the combined company’s enterprise value to roughly $166 billion.

For Enbridge investors, there are two main benefits to this significant merger.  The first is the increased diversification of the Enbridge entity. After the merger is completed, Enbridge’s assets are roughly evenly divided between crude and natural gas liquids. The second main benefit is the significant cost synergies that are expected to be realized by 2019. More specifically, Enbridge is expecting to realize about $800 million of cost savings by 2019, which is primarily composed of general operating and administrative costs.

Most details on the merger’s expected cost savings can be seen below.

ENB Merger

Source: Enbridge Investor Presentation, slide 14.

Compared to many other energy companies, Enbridge operates a notably de-risked business model.

About 96% of the company’s revenue is generated by take-or-pay delivery contracts, which means that the counterparty must either accept Enbridge’s product delivery or pay a substantial sum as punishment.

In addition, 93% of Enbridge’s counterparties are investment grade businesses.  This helps to limit the counterparty risk assumed by this energy giant.

ENB Financial Strength

Source: Enbridge Investor Presentation, slide 12.

While the company’s business model is relatively low risk, the Enbridge-Spectra merger has left the combined company with more debt than it would like.  Enbridge’s debt to EBITDA ratio current sits at about 6.2x, higher than it has been in some time.  Accordingly, the company intends to deleverage itself over the next several years. It is targeting a debt to EBITDA ratio of 4.3x by 2019.

ENB Balance SheetSource: Enbridge Investor Presentation, slide 13.

What truly stands out about an investment in Enbridge is its remarkable dividend growth potential.  Because of the combined company’s robust growth project pipeline, Enbridge is expected to realize organic dividend growth of 10%-12% through 2024. This is a bold claim, but the company’s management is confident that it can be achieved thanks to the Spectra merger.

ENB Growth

Source: Enbridge Investor Presentation, slide 15.

Studies have shown that dividend yield plus dividend growth is a good proxy for long-term total returns.

Enbridge’s current 4%+ dividend yield combined with the company’s 10%+ dividend growth target means that Enbridge investors have a very high probability of realizing outsized shareholder returns moving forward.

BCE Inc. (BCE)

BCE Inc. (short for Bell Canada Enterprises) is Canada’s largest telecommunications company with a market capitalization of CAD$53 billion. The company operates in three primary segments:

  • Bell Wireless
  • Bell Wireline
  • Bell Media

Each of these segments enjoys a leadership position in its industry.  For instance, the wireless segment added almost 300,000 subscribers in the most recent quarter alone.Bell metrics

Source: BCE Inc. First Quarter Earnings Presentation, slide 7.

In addition to its wireless and wireline leadership, BCE controls some of Canada’s most iconic media channels through its Bell Media segment, including:

  • CTV New
  • TSN (The Canadian equivalent of ESPN)
  • Crave TV
  • HBO Canada
  • Showtime

More details about the Bell Media segment can be seen below.

Bell Media

Source: BCE Inc. First Quarter Earnings Presentation, slide 11.

For Bell investors, the major news as of late is the company’s acquisition of Manitoba Telecom Services (MTS).  The transaction, which has an enterprise value of CAD$3.9 billion, saw Bell purchase all of the issued and outstanding MTS common stock for $3.1 billion and assume an additional $800 million of debt.

The MTS acquisition significantly bolters BCE’s presence in Western Canada (which has been historically dominated by TELUS and smaller regional players).

More details about the MTS acquisition can be seen below.


Source: BCE Inc. First Quarter Earnings Presentation, slide 5.

What really stands out about an investment in BCE is the company’s exceptionally high dividend yield. The company currently yields about 4.8% and is likely the single safest high yield dividend stock on the Canadian market.

The Toronto-Dominion Bank (TD)

The Toronto-Dominion Bank (TD) – or TD, for short – is Canada’s largest financial institution by assets and Canada’s second-largest financial institution by market capitalization.

TD has a dominant presence in the Canadian market and has made a meaningful expansion into the United States over the past 10 years or so. The bank now has more branches and more deposits in its U.S. Retail segment than its legacy Canadian Retail segment.

TD Snapshot

Source: TD Second Quarter Earnings Presentation, slide 3.

TD’s two retail segments are complimented by its smaller Wholesale Banking segment, which includes research, investment banking, and capital market services.

TD’s largest competitive advantage is its impressive size and scope as one of the largest lenders in North America.

TD is the largest bank in Canada based on a number of important metric, and falls within the top 10 on a North America-wide basis.

TD in North America

Source: TD Second Quarter Earnings Presentation, slide 6.

The bank also benefits from its premium earnings mix.  TD generates the vast majority of its earnings from its two retail segments.  This is beneficial for shareholders because retail earnings are said to be ‘of higher quality’ than wholesale bank earnings, meaning that they are less prone to fluctuations during recessions or economic downturns.

TD’s earnings mix for fiscal 2016 can be seen below.TD Earnings

Source: TD Second Quarter Earnings Presentation, slide 7.

TD also stands out as a dividend stock.  Since 1995, the company has grown its dividend at a CAGR of 11%. Further, TD has a relatively high dividend yield compared to the broader stock market. TD currently yields about 3.7%, nearly twice as much as the average dividend yield in the S&P 500 (which is 1.9%).

TD Dividend History

Source: TD Second Quarter Earnings Presentation, slide 13.

Altogether, TD is a fantastic dividend stock, which is why it ranks as #1 in the Canadian market according to The 8 Rules of Dividend Investing.

Final Thoughts

Each of the companies on this list makes an appealing investment in their own way.

However, they all have certain similarities that help them to rank well using a quantitative strategy such as The 8 Rules of Dividend Investing.

High dividend yields, strong growth prospects, and low volatility are all common factors in why these companies make great long-term investments.

Sure Dividend disclosure:  Nick McCullum owns all companies listed.

My Own Advisor disclosure:  These stocks are not recommendations for purchase.  All investors are encouraged to do their own due diligence prior to making any investment decision.  Please consider consulting a financial professional to help you make any investing decision.  My Own Advisor owns all companies listed.

My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.

8 Responses to "My Favourite Canadian Dividend Stocks"

    1. Yes, I do love dividends 🙂 I happen to own all major banks, telcos and utility companies. Unless our economy changes, those companies run Canada and I will continue to own them. This way, I don’t have to pick and choose winners.

      How is your journey coming along GYM?

  1. I like TD and hold a substantial amount in my portfolio.
    It has done very well yet it is important to remember that past performance is no guarantee of future returns.
    Many analysts are predicting slowing growth in bank profits with top lines stagnant and bottom lines aided by drastic cuts in staff and expenses.

    1. Thanks for reading Jaffer.

      Who knows what the future holds really…analyst perspectives are very interesting but I don’t think they hold any magic keys 🙂

      You? How is your portfolio coming along?

  2. This is a great post Mark and Nick. I love how in depth you go for each stock. I’m definitely going to incorporate more detail into my dividend article when I update it in September.

    Lovely to see that I own the majority of these as well. Keep up the great work. Will be sure to check out your website as well Nick.

    1. Thanks Dan.

      Nick did a very detailed review and details are fun and interesting to read. Long-term, I suspect/hope these stocks will thrive but you never know.


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