Canadian Dividend Kings & Aristocrats – September 2023

Investing in Dividend Kings (aka Dividend Aristocrats) always looks subpar when technology stocks race ahead as they have so far in 2023.  That said, they make you look like a genius when those high-risk, high-growth stocks plummet 50%+ in downturns. Click here to jump directly to my 2023 picks.

While 2023 hasn’t been a banner year for Canadian dividend kings, they have benefitted from a broader macroeconomic picture that has been mostly positive. Certain economic sectors such as telecoms, utilities, and pipelines are capital-intensive, and do see their profit margins narrowed lightly by increased costs when interest rates go up. 

That said, for companies with the long-term track record of Dividend Aristocrats or Dividend Kings, interest rate gyrations are nothing they haven’t managed through before.

Reliable (if small) long-term stock appreciation, combined with juicy dividends, are why Canadian dividend kings hold a sacred place in my portfolio. We may very well be in a “sideways” market for a while, and in that situation, holding stocks that spin off gobs of dividend cash is an excellent way to position oneself.

With most of Canada’s best dividend stocks being part of long-time market oligopolies, we see that they have been able to maintain or even grow their profit margins – meaning more profit for shareholders.

With little-to-no news of dividend cuts (or even pauses), dividend-focused investors have likely found it much easier to navigate the stormy market waters relative to growth stock enthusiasts.

Top Canadian Dividend King Pick for 2023: National Bank

Our 2021 top Canadian dividend king pick was Enbridge. I simply felt that given the company’s track record of producing solid returns and rewarding shareholders, the valuation was substantially off. 

The stock rewarded me with a capital gain of over 21%, plus the 8.1% dividend (at time of purchase) for an overall return of roughly 29.5%. That compares favorably to the overall return of the TSX (27%) and 25% for CDZ – the Canadian dividend aristocrats ETF.

For 2022 our Canadian dividend king was National Bank (NA).

So… you might be surprised to learn that my Canadian dividend king pick for 2023 is (*drumroll*) National Bank!

I was looking like a real genius until last week’s quarterly earnings.  While National Bank is still the performing big bank stock so far in 2023 (by a sizeable margin) it is only up about 3% YTD. When factoring in the juicy 4.3% dividend yield, the total return has still been solid if not spectacular.

Higher-for-longer interest rates and increased loan-loss provisions have weighed on the entire Canadian banking sector. I personally think the entire sentiment is overdone, and that the banks are oversold at the moment.

The mini-banking crisis we saw down in the USA earlier this year barely even phased the Big 6 up in Canada.  Trust in the banks remains quite strong. Given National Bank’s home base of Quebec, their mortgage business is much less risky than banks which loaned out huge amounts of mortgages in Ontario and BC over the years.

Out of all the Canadian banks, National bank has been the most generous with its dividend raises over the last 3- and 5-year periods – BUT even with all that dividend generosity, it still has a fairly low payout ratio.  That bodes well for the long-term, and certainly means there is no dividend cut in store for 2023.

While Provision for Credit Losses (PCLs) will hold the banks a bit in 2023, I don’t see this as a significant headwind overall. I wrote more about the loan loss provisions that the financial institutions were setting aside in my investing in Canadian bank stocks article.

The banks should continue to benefit from the growing interest rate spreads, and their cautious building of reserves is the exact reason why they are such solid long-term investments.

My insights on National Bank – as well as the 2023 Canadian Dividend Kings list below – are based on my own research, but also relied heavily on the advice and tools provided by Dividend Stocks Rock.  

DSR not only provides excellent written advice, but also a ton of free webinars, and ideal tools for analyzing both the Canadian and American dividend markets. Read my DSR review for an in-depth look at just why I’m such a big fan of what fellow Canadian Mike Heroux has put together.

Don’t just take my word for it, see what Mike Heroux has to say about National Bank after the latest round of bank earnings reports in 2023.  Mike used to work for National Bank for many years, so if you’re looking for someone that understands all aspects of this company – it’s him!

Dividend Aristocrats and Dividend Kings Offer Stable Growth

In fact, many studies (such as Vanguard) have proven that dividend growers are likely to outperform the market and do it with less volatility. Dividend growers such as the best Canadian dividend aristocrats will continue to increase their dividend in 2023.

Canadian companies with a long history of dividend growth will generally show a strong business model and robust financials. They have gone through many recessions and never stopped increasing dividend payments. In times of confusion and fear, you can go back and look at how companies went through the past crisis and kept their dividend streak alive. 

I use the dividend strategy for my leveraged portfolio, a significant portion of my RRSP, and our corporate portfolio.  We currently collect a little over $73,000/year in dividends and if you are interested, you can follow my latest dividend update here.

In the past, I’ve written a number of articles on dividend growth stocks, I’ve never properly categorized them. Here are the most common dividend terms as they relate to the U.S. stock market:

• A Dividend Achiever is a company that has increased its dividend at least 10 years in a row;
• A Dividend Contender is a traded company that has raised dividends for 10 to 24 consecutive years.
• A Dividend Champion is a company that has increased its dividend at least 25 years in a row (regardless if it is part of the S&P 500 or not);
• A Dividend Aristocrat is a company that is part of the S&P 500 and that has increased its dividend at least 25 years in a row;
• A Dividend King is a company that has increased its dividend at least 50 years in a row. The true cream of the crop.

Dividend Aristocrats and Dividend Kings in Canada

Here in Canada, we have a relatively small market and an even smaller list of quality dividend stocks.  In a previous article about the top Canadian dividend growth stocks, you will see a number of dividend achievers (10 years+ ), a handful of dividend aristocrats (25 years+), but no dividend kings in Canada (although FTS (48) and CU (49) are getting close).

As of September 2023

Canadian Dividend Aristocrat Definition

While I used the terms dividend achievers and dividend aristocrats for the Canadian stock market  in the previous section, I must highlight that the official definition of the Canadian dividend aristocrat differs from the one established in the U.S.

In order to be considered as a S&P Canadian Dividend Aristocrat, the company must have increased its dividend payout every year for five years – Therefore, we are looking at stocks that have a good potential for raising its dividend but still pretty far away from 25 consecutive years.

Dividend Kings List

In a few years, we will be able to have a shortlist of Canadian dividend kings (including Fortis and Canadian Utilities). In the meantime, where do we find these elusive dividend kings? You’ll have to look at the biggest market in the world – the US!  In the US, there are 30 dividend kings that have increased their dividend at least 50 years in a row.  

Here is a table supplied by Dividend Stocks Rock:

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Here is the same table sorted by yield:

As you can see from the list, some of these names are very recognizable with global brand awareness and long term competitive advantage.  Names such as Procter & Gamble, Coke, Johnson & Johnson, 3M, Colgate, and Lowe’s.

You will also notice that most of them show a low dividend yield. The dividend king average yield is 2.74% with an average dividend growth of 6.50%. This shows you that one must pay for the quality. Finally, most dividend growers will not only reward shareholders with dividend increases, but also with steady capital appreciation.

As a disclaimer, I hold the following dividend kings within my RRSP: Procter & Gamble; 3M; Emerson Electric; Coca-Cola; Target; and, Johnson & Johnson.  Also, this post is not meant to provide recommendations for your portfolio, but a starting point for your research.

Dividend King Investments for Canadian Retirees

Canadian retirees love collecting stable, dependable Canadian dividends. It makes sense that amongst those who prioritize stability and income flow, Dividend Kings and Dividend Aristocrats are in the highest demand.

In addition to the obvious reasons for retirees to love Canadian blue chip companies with strong balance sheets, there is a bit of a hidden reason as well: the tax advantages. Canadian dividend income is actually taxed at a negative rate until you hit the $40,000-$50,000 range (exact figure depends on which province you live in).

This means that a retired couple can earn close to $100,000 in Canadian dividend income before they pay a dime in income tax! At lower income thresholds, that negative tax rate can actually help offset income tax owing from part-time work or CPP/OAS payments.

Of course, it should be pointed out that one must hold these Canadian dividend stocks outside of their RRSP and TFSA in order to benefit from this tax treatment. It’s also important to understand that this advantageous tax treatment only pertains to Canadian stocks, and not to American or other international stocks. Dividends generated by those companies will almost assuredly be hit with a withholding tax before you get the money in your brokerage account.

Given the tax benefits and relative stability (still more risky than a Canadian GIC) it’s no wonder that Canadian Dividend King stocks are a hit with retirees. It is key to remember though, that diversity is your investing friend. It can be easy to become too focused on one specific type of company within the Canadian market. 

Canadian Dividend King FAQ

Canadian Dividend King 2023 Outlook

Investing in dividend kings isn’t about trying to make a quick buck using speculative investment strategies such as momentum trading or anything like that. 

It’s simply about selecting companies that have shown the discipline and management efficiency that is necessary to grow a dividend over a long period of time.

If you are willing to be patient, and focus on long-term durable competitive advantage, then Canadian dividend kings are very likely to reward you given their long-term track record, as well as Canada’s overall growth.

My main source for Canadian dividend news (as well as news on American Dividend Aristocrats) is Mike Heroux’s “Dividend Stocks Rock” platform.  Mike’s detailed analysis and personal transparency are second-to-none.  His exclusive webinars containing up-to-the-minute information offer incredible investor value.

If you’re interested in learning more about the companies on our Canadian dividend kings list, consider the following articles:

• Dividend Stocks Rock Newsletter Signup
• How to Build a Dividend Growth Portfolio
• Beating the TSX (dogs of the TSX stock picks)
• How to buy stocks
• When to buy dividend stocks
• How to create a stock watchlist
• Top Canadian stock screeners