As we update our list of the Best Canadian Dividend Stocks for April, 2022, we continue to focus on four key areas:

  • Dividend Yield
  • Dividend Growth Consistency
  • Earnings Per Share
  • Overall Company Revenues

As we head into spring and summer, safe Canadian dividend stocks continue to hold more and more allure as stable linchpins in a world beset by instability on all sides.  Rising interest rates and oil price shocks are bad for the overall world economy, but for Canadian banks and energy companies, it means increased profit margins.  

With Canadian dividend-payers in fields like telecommunications, utilities, finance, and railways, all enjoying strong oligopoly-ish advantages, we continue to see an environment where these companies can mostly pass increasing costs on to the final consumer and maintain strong profitability in the face of inflation headwinds.

Long story short, I see no safer place in the world right now than Canadian dividend blue chip equities.


As a longtime dividend investor (I’ve had a Canadian dividend investing portfolio for over 15 years now, since I started the Smith Manoeuvre) I’ve learned that while current dividend yield is a beautiful thing, it’s the long-term dividend growth and earnings per share (EPS) that will really drive your overall portfolio returns. 

My personal selection for the top dividend stocks for long-term investments are available below.

Our Top 10 Canadian Dividend Growth Stocks (April 2022)

Here’s a look at our top 10 long-term Canadian dividend stocks in order of their dividend increase streak.

Name

Ticker

Sector

Div Streak

Dividend Yield

5yr Revenue Growth

5yr EPS Growth

5yr Dividend Growth

Payout Ratio

P/E

FTS.TO

Utilities

48

3.31%

6.68%

-0.99%

6.10%

79.85%

24.73

ENB.TO

Energy

26

5.86%

6.37%

73.64%

9.52%

117.23%

20.44

CNR.TO

Industrials

26

1.87%

3.76%

-7.90%

10.40%

35.57%

22.70

T.TO

Communications

18

3.80%

5.76%

-1.75%

6.68%

103.38%

28.17

EMA.TO

Utilities

15

4.11%

6.15%

-7.71%

5.24%

128.82%

32.74

NA.TO

Finance

12

3.69%

8.14%

13.60%

5.43%

31.37%

9.98

ATD.B.TO

Business

12

0.89%

5.90%

23.18%

20.88%

9.92%

17.71

AQN.TO

Utilities

11

4.27%

21.53%

-0.24%

8.79%

165.34%

40.03

RY.TO

Finance

11

3.51%

5.67%

9.99%

5.92%

39.02%

12.15

ITP.TO

Business

3

2.16%

13.62%

-2.65%

2.78%

57.14%

28.14

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For my full 32-stock list of Canadian dividend earners that I’m buying today – as well as the 74-stock list of US Dividend all stars that I recommend – check out the platform that I personally use to do my dividend stock research.

Note: Data on this article updates periodically. If you are looking for real time data and guidance, read our recommendation below.

More Up to Date Canadian Dividend Stocks Data

The easiest way to keep up to date with the best dividend stock picks, is by signing up with Dividend Stock Rock. DSR is not just a weekly newsletter with stock picks. It’s a program that will help you manage your portfolio and improve results using unique and sophisticated tools.

The person behind DSR is Mike, the most prominent and active dividend stock blogger in Canada and is a certified financial planner since 2003.

You can first read our detailed DSR review, or sign up now by clicking the button below. Our readers are eligible for an exclusive 33% off discount using code MDJ33.


2022 Canadian Dividend Update

As war and inverted yield curves continue to roil the markets in 2022, we are seeing investors continue to cycle away from the highly variable US tech stocks that led the recovery and into some of Canada’s Dividend Kings

Canadian dividend investors were happy to finally see the Office of the Superintendent of Financial Institutions (OSFI) allow banks to begin raising their dividends and pursuing stock buybacks in 2021.

See our recent article on Canadian bank stocks for more details on just why we appreciate the beauty of Canadian bank dividends so much.  The final quarter saw Canadian banks absolutely thrive, and finally be allowed to increase their dividends again.

Bank

Dividend Increase

EPS

2017 Dividend

2021 Dividend

2022 Dividend

Payout Ratio

BMO.TO

25.47%

53.28%

$0.88

$1.06

$1.33

36.56%

NA.TO

22.54%

57.29%

$0.56

$0.71

$0.87

31.37%

TD.TO

12.66%

20.06%

$0.55

$0.79

$0.89

40.86%

RY.TO

11.11%

41.39%

$0.83

$1.08

$1.20

39.02%

BNS.TO

11.11%

45.30%

$0.76

$0.90

$1.00

46.54%

CM.TO

10.27%

69.38%

$1.27

$1.46

$1.61

41.81%

I Survived Coronavirus Sign Or Stamp

As you can see from the chart above, the banks are in great shape as we head into 2022. 

Sure, there is the specter of slightly increased taxation around the corner, but with payout ratios like the ones above, combined with those really solid Earnings Per Share numbers – we remain strong in our belief that there are no better options for investors who want stable long-term growth combined with free cash flow.

canadian bank stocks graph2

With inflation fears now dominating the media news cycle, we see more than ever that companies with solid balance sheets and oligopoly-driven moat stocks are the smart long-term play. Companies that can pass along those inflation-fuelled rise in costs have historically outperformed during inflation cycles.  

Frankly, I think all of this talk about inflation might be a bit overdone, and that it’s likely to come down to the 3-3.5% range next year. At that rate, it’s really only a mild concern in the grand scheme of things. I’d be much more worried if this was deflation we were talking about!

Our list of top Canadian inflation stocks explains exactly which companies we believe are best positioned in order to pass along the inevitable price increases and increased costs that will come along in 2022.

Of course we remain committed to our long-term strategy of balancing EPS with a company’s ability to grow its dividend, in order to allocate our personal dividend nest egg.  

Afterall, the only thing better than a high dividend yield today, is a much larger (and increasing) one tomorrow!

Check out our in-depth Dividend Stocks Rock Review for a deeper dive on just why we trust the service so much, and more details on our exclusive promo offer code.


My Top Canadian Dividend Stock Recommendations

Sorted in order of dividend streak:

Fortis (FTS.TO) – 48 Years of Dividend Growth

  • 3.72% Dividend Yield
  • 6.68% 5 Year Revenue Growth
  • 6.10% 5 Year Dividend Growth
  • 79.85% Payout Ratio
  • 22.05 P/E

Investment Thesis:

Fortis aggressively invested over the past few years resulting in strong and solid growth from its core business. You can expect FTS’s revenues to continue to grow as it continues to expand. Strong from its Canadian based businesses, the company has generated sustainable cash flows leading to four decades of dividend payments. 

The company has a five-year capital investment plan of approximately $19.6 billion for the period 2021 through 2025. Only 33% of its CAPEX plan will be financed through debt. Nearly two-thirds will come from cash from operations. Chances are most of its acquisitions will happen in the US. 

We also like the FTS goal of increasing its exposure to renewable energy from 2% of its assets in 2019 to 7% in 2035. The FTS yield isn’t impressive at  3.70%, but there is a price to pay for such a high-quality dividend grower.

Dividend Growth Perspective:

Management increased its dividend 6% in 2019 and 2020 and has declared that it expects to increase dividends by 6% annually until 2025. We like it when companies show motivation for growth (through acquisitions) and reward shareholders at the same time!

After all, Fortis is among those rare Canadian companies who can claim it has increased its dividend for 48 consecutive years. Fortis is a great example of a “sleep well at night” stock.


Enbridge (ENB.TO) – 26 Years of Dividend Increases

  • 6.53% Dividend Yield
  • 6.37% 5 Year Revenue Growth
  • 9.52% 5 Year Dividend Growth
  • 117.23% Payout Ratio
  • 18.34 P/E

Investment Thesis:

ENB’s customers enter 20-25-year transportation contracts. It is already well positioned to benefit from the renewed profits of the Canadian Oil Sands (as its Mainline covers 70% of Canada’s pipeline network). 

As production grows, the need for ENB’s pipelines remains strong. 

After the merger with Spectra, about a third of its business model will come from natural gas transportation. Enbridge has a handful of projects on the table or in development. It must deal with regulators notably for their Line 3 and Line 5 projects. Both projects are slowly but surely developing. 

The cancellation of the Keystone XL pipeline (TC Energy) secures more business for ENB for its liquid pipelines. ENB has now a “greener” focus with their investments in renewable energy. The stock offers a yield over 6% which makes it a strong candidate for any retirement portfolio.

Dividend Growth Perspective:

The company has been paying dividends for the past 65 years and has 26 consecutive years with an increase.  While it’s probable dividend growth won’t be as generous as compared to the past three years (10%/year), the current generous yield makes up for it. Management aims at distributing 65% of its distributable cash flow, leaving enough room for CAPEX. 

Look for their latest quarterly presentation for their payout ratio calculation. Management expects distributable cash flow growth of 5-7%. Therefore, you can expect a similar dividend growth rate. We have used more conservative numbers in our DDM calculation.


Canadian National Railway (CNR.TO) – 26 Years of Dividend Increases

  • 1.86% Dividend Yield
  • 3.76% 5 Year Revenue Growth
  • 10.40% 5 Year Dividend Growth
  • 35.57% Payout Ratio
  • 22.82 P/E

Investment Thesis:

Canadian National has been known for being the “best-in-class” for operating ratios for many years. CNR has continuously worked on improving its margins. The company also owns unmatched quality railroads assets. 

CNR has a very strong economic moat as railways are virtually impossible to replicate. Therefore, you can count on increasing cash flows each year. Plus, there isn’t any more efficient way to transport commodities than by train. The good thing about CNR is that you can always wait for a down cycle to pick up some shares. There’s always a good occasion around the corner when we look at railroads as attractive investments. 

Finally, the cancellation of the Keystone XL pipeline has driven more oil transportation toward railroads. CNR has benefitted from this tailwind.

In 2021 CNR entered a bidding war against CP to buy the Kansas City Southern Railroad.  When the deal fell through for CNR, and the company announced a renewed focus on efficiency, long-term investors were rewarded handsomely as the stock shot up in value.

Dividend Growth Perspective:

CNR has successfully increased its dividend yearly since 1996. The management team makes sure to use a good part of its cash flow to maintain and improve railways, all while rewarding shareholders with generous dividend payments.

CNR shows impressive dividend records with very low payout ratios. While the business could face headwinds from time to time, its dividend payment will not be affected. Shareholders can expect more high-single-digit dividend increases.


Telus (T.TO) – 18 Years of Dividend Increases

  • 4.09% Dividend Yield
  • 5.76% 5 Year Revenue Growth
  • 6.68% 5 Year Dividend Growth
  • 103.38% Payout Ratio
  • 26.23 P/E

Investment Thesis:

Telus has grown its revenues, earnings, and dividend payouts on a very consistent basis. It is very strong in the wireless industry and is now attacking other growth vectors such as the internet and television services.

The company has the best customer service in the wireless industry as defined by their low churn rate. It uses its core business to cross-sell its wireline services. Telus is particularly strong in Western Canada, but has the recent Rogers turmoil to increase market share throughout the country.

Telus is well-positioned to surf the 5G technology tailwind. This Canadian telecom stalwart looks at original (and profitable) ways to diversify its business. Telus Health, Telus Agriculture and Telus International (artificial intelligence) (TIXT.TO) are small, but emerging divisions that should lead to more growth going forward.

Dividend Growth Perspective:

This Canadian Aristocrat is by far the industry’s best long-term dividend-payer (as opposed to short-term yield). Telus has a high cash payout ratio as it puts more cash into investments and capital expenditures.

Capital expenditures are always taking away significant amounts of cash due to their massive investment in broadband infrastructure and network enhancement. Such investments are crucial in this business.

Telus fills the cash flow gap with financing for now. At the same time, Telus keeps increasing its dividend twice a year showing strong confidence from management.


Emera (EMA.TO) – 15 Years of Dividend Increases

  • 4.52% Dividend Yield
  • 6.15% 5 Year Revenue Growth
  • 5.24% 5 Year Dividend Growth
  • 128.82% Payout Ratio
  • 29.77 P/E

Investment Thesis:

Emera is a very interesting utility with a solid core business established on both sides of the border. EMA now shows $32 billion in assets and will generate annual revenues of about $6 billion. It is well established in Nova Scotia, Florida, and four Caribbean countries. 

This utility is counting on several “green projects” consisting of both hydroelectric and solar plants. Between 2021 and 2023 management expects to invest $7.4 to $8.6B in new projects to drive additional growth. These investments decrease the risk of future regulations affecting its business as the world is slowly moving toward greener energy. 

Most of its CAPEX plan will be deployed in Florida where Emera is already well established. In general, Florida offers a highly constructive regulatory environment. In other words, EMA shouldn’t have any problems raising rates. This is another “sleep well at night” investment.

Dividend Growth Perspective:

Emera has been increasing its dividend payments each year for over a decade. With the purchase of TECO energy management intends to continue that tradition. The company forecasts a 4-5% dividend growth rate through 2022, while targeting a payout ratio of 70-75%. 

At a 4%+ dividend yield, this is a keeper for several years. Don’t get fooled by the high payout ratio, as the adjusted earnings show a payout ratio around 80% including the recent dividend growth. This is the type of company that fits perfectly in a retirement portfolio.


National Bank (NA.TO) – 12 Years of Dividend Growth

  • 3.40% Dividend Yield
  • 8.14% 5 Year Revenue Growth
  • 5.43% 5 Year Dividend Growth
  • 31.37% Payout Ratio
  • 11.42 P/E

Investment Thesis:

NA has targeted capital markets and wealth management to support its growth. Private Banking 1859 has become a serious player in that arena. The bank even opened private banking branches in Western Canada to capture additional growth. 

Since NA is heavily concentrated in Quebec, it concluded deals to do credit for investing and insurance firms under the Power Corp. (POW). The stock has outperformed the Big 5 for the past decade as it has shown strong results. 

National Bank has been more flexible and proactive in many growth areas such as capital markets and wealth management. Recently, NA is seeking additional growth vectors by investing in emerging markets such as Cambodia (ABA bank) and in the U.S. through Credigy. Can it have more success than BNS on international grounds? It looks like they may have found the magical formula to do so!

Dividend Growth Perspective:

National Bank has been one of the most generous banks over the past five years – which is not bad considering the company had to take a pause in its dividend increases between 2008 and 2010 due to the financial crisis.

The bank also had to pause its dividend growth in 2020-2021 and wait for regulations to be lifted. It finally happened at the end of 2021 and the bank rewarded their shareholders’ patience with a dividend increase of 23% (to $0.87/share).


Alimentation Couche-Tard (ATD.B.TO) – 12 Years of Dividend Growth

  • 0.89% Dividend Yield
  • 5.90% 5 Year Revenue Growth
  • 20.88% 5 Year Dividend Growth
  • 9.92% Payout Ratio
  • 15.91 P/E

Investment Thesis:

If you are looking at the long-term horizon, your dividend payouts should grow in the double digits, and you also should enjoy strong stock price growth. ATD’s potential is directly linked to its capacity to acquire and integrate additional convenience stores.

Management has proven its ability to pay the right price and generate synergies for each deal. ATD shows a perfect combination of the dividend triangle: revenue, EPS, and strong dividend growth. 

After a few deals that didn’t happen, management turned around with a business model including lots of organic growth potential. This is a rare opportunity on the market.

Dividend Growth Perspective:

The mediocre current 0.89% dividend yield is so low, that ATD might failed to be considered as a dividend grower. However, the dividend payout has surged in the past 5 years (+94%) and the stock price jumped by over 45% (including the stock price drop in early 2020).

The only reason why the dividend yield is so low, is that ATD is on a fast track for growth. ATD will continue steadily increasing its payout, while providing stock value appreciation to shareholders.


Algonquin Power & Utilities (AQN.TO) – 11 Years of Dividend Growth

  • 4.91% Dividend Yield
  • 18.88% 5 Year Revenue Growth
  • 11.06% 5 Year Dividend Growth
  • 44.49% Payout Ratio
  • 14.25 P/E

Investment Thesis:

Like many utilities in North America, solid growth is coming from outside the company. AQN had about 120K customers in 2013 and now serves over 800K customers. It achieved this impressive growth through acquisitions. 

The company “did it again” through the recent acquisition of Kentucky Power. The transaction is expected to close in Q2 2022 and should add another 165K customers. With a budget of $9.2B in CAPEX, AQN has several projects pending through 2025. These include more acquisitions, pipeline replacements and organic CAPEX. 

The utility counts on its regulated businesses to grow its revenue once those projects are funded. AQN shows a double-digit earnings growth potential for the foreseeable future but expect a short-term slowdown due to an aggressive leverage strategy and more common shares being issued.

Dividend Growth Perspective:

The dividend fluctuations are due to currency as the company once paid its dividend in CAD, and now it is in USD. As a Canadian company, 93% of AQN’s EBITDA is from the U.S. Therefore, there is no reason to worry about the company’s cash distribution.

AQN shows an ambitious capital expenditure (CAPEX) budget through 2025. These investments will drive earnings higher, and shareholders will be rewarded accordingly. Shareholders can expect a single high-digit dividend growth rate for the next decade.


Royal Bank (RY.TO) – 11 Years of Dividend Increases

  • 3.37% Dividend Yield
  • 5.67% 5 Year Revenue Growth
  • 5.92% 5 Year Dividend Growth
  • 39.02% Payout Ratio
  • 12.87 P/E

Investment Thesis:

Royal Bank counts on many growth vectors including insurance, wealth management, and capital markets divisions. These sectors now represent over 50% of its revenue. These are also the same segments that helped Royal Bank to stay the course during the pandemic. 

Royal Bank has made huge efforts in diversifying its activities outside of Canada and has a highly-diversified revenue stream to offset interest rate headwinds. Canadian banks are protected by federal regulations and enjoy an oligopoly, but this generally limits their long-term growth. 

Having a foot outside of the country helps RY to reduce risk and improve its growth potential. The bank posted impressive results for the latest quarter driven by strong volume growth and market share gains which offset the impact of low interest rates. 

Royal Bank shows a perfect balance between revenue growth and dividend growth and is likely to increase its dividend accordingly.  It is amongst the safest (worth paying for quality) of Canada’s big banks.

Dividend Growth Perspective:

Royal Bank has a “tradition” of increasing its dividend twice a year. In normal times, you can count on two low-single-digit dividend increases each year. It paused its dividend growth policy between 2008 and 2010, but came back with the double-digit dividend growth tradition in 2012.

Regulators put a hold on dividend increases for all banks in 2020 and Canadian banks were waiting for approvals from the regulators.  As soon as they got the official go ahead in the fourth quarter of 2021, RBC rewarded investors with a 11% dividend hike.


Intertape Polymer (ITP.TO) – 3 Years of Dividend Increases

  • 3.53% Dividend Yield
  • 10.22% 5 Year Revenue Growth
  • 4.70% 5 Year Dividend Growth
  • 48.72% Payout Ratio
  • 15.39 P/E

Investment Thesis:

With the rise of online shopping, the packaging industry should benefit from this tailwind. ITP is #1 and #2 in its main markets in North America and shows many international expansion opportunities. Management also expects to grow by acquisition to expand its current line of products, consolidate its activities, and open additional doors to international markets. In August 2018, the company completed the acquisition of Polyair Inter Pack for $146M. 

In 2021, ITP announced the acquisition of Nuevopak for $44M. This was a strategic move to expand ITP’s product offerings while opening doors to cross-selling opportunities. ITP is also investing massively to expand production capacity of water-activated tapes, woven fabrics, protective packaging and films.

Dividend Growth Perspective:

ITP doesn’t increase its dividend every year. That is the price you pay for a growth by acquisition business model. 

At least they show solid payout ratios. Keep in mind the dividend payment is in USD (currently $0.17USD/share). Therefore, the dividend growth line on the graph is fluctuating.

Don’t expect regular dividend increases as the company uses most of its cash for acquisitions to increase its total revenues. The company has been generous with three consecutive dividend increases over the past three years. It may earn a dividend safety score of 4 if it can increase its payout in 2022.

ITP has improved its cash flow generation abilities over the past 12 months, and this should help for future potential dividend increases.

Canadian Dividend Stocks with 10 Years of Dividend Increases

The year 2021 has been one of intense change and turmoil. The COVID-19 pandemic has forced us to review each company in our portfolio and review their business model. Some will survive and thrive, while others will have a hard time surviving this crisis.

The point here is not to change my list, but to add more perspective now that we know more about the nature of the economic lockdown. Some companies are great, but they just don’t function well when their doors are closed!

Canada’s 38 Dividend Growth Stocks

(Ten Years or More Dividend Increases)

Click below to find all the new additions to the previous top Canadian stocks. The following have been handpicked for their ability to face the economic lockdown and thrive going forward.


Dividend Investing in Canada – Frequently Asked Questions

“How do dividend stocks work?”

Simply put, dividends are the payment that businesses make to their owners after expenses have been paid for during a specific time period.  Some companies produce yearly dividends, but most pay “quarterly” (every three months). 

Most dividend-heavy companies (certainly all of the Canadian dividend stocks on the list above) announce their dividend intentions for the next year, and then split up their after-tax profit between dividends and retained earnings.  The retained earnings are put back into the company in one form or another, while dividends are simply paid out to shareholders. 

Companies can “slash” or cut their dividend whenever they wish – there is no law saying they must pay out a certain percentage of profit or anything like that.  Consequently, there is often an emphasis on long-time dividend growth stocks that have a proven track record of not only paying out dividends, but increasing them as time goes on, and thus rewarding shareholders.

“How is a dividend being paid?”

 Dividends are paid to shareholders.  They are paid out on a per-share basis, and for each share you own as an investor, you get paid a certain amount.  This amount is most commonly expressed a percentage of the current price of a stock. 

So for example, you might hear, “Enbridge currently has a dividend ratio of 8%.”  This simply means that if Enbridge’s current stock price was $40, (.08 x 40 = $3.20) an investor would expect to earn $3.20 in dividends from Enbridge for the upcoming year.  That $3.20 would likely come to them in four separate installments of $0.80.

Companies can also announce “Special Dividends” at any time.  In this situation, there is a unique one-time payout to shareholders.

In order to qualify for a dividend you must purchase a share before the “ex-dividend date” – which is announced by each company fairly far in advance.

“How to buy dividend stocks in Canada?”

While you can still buy dividend stocks through the old fashioned telephone brokerage systems, the vast majority of investors now purchase dividends as DIY investors using their discount brokerage accounts. 

At Million Dollar Journey, we have put together dozens of reviews and comparisons pieces destined to provide our readers with insights regarding the best Canadian broker for long term investing.

Read about the most popular brokers like Qtrade and Questrade as well as robo-advisors like Wealthsimple and learn how to maximize your savings in that regard.

The other common way to get portfolio exposure to Canada’s best dividend stocks is through dividend-ETFs on the Toronto Stock Exchange (TSX).  Using a dividend ETF provides your investment dollar with instant diversification to companies that have a strong dividend profile.

“When to buy dividend stocks?”

The honest answer is: “Any time you have the investing funds available to do so”.  There are many folks out there who think that they can time the market and purchase stocks at the absolute perfect time.  Despite that belief, there is very little evidence that this is true. 

It’s also quite difficult to time when stocks are nearing the peak.  Consequently, the most successful dividend investors that I’ve seen are folks who stick to a pre-planned strategy and simply invest their surplus funds as soon as they are able, into shares of dividend-payers that they have done their homework on and anticipate holding for the long term.

“When is the time to sell dividend stocks?”

If you are like Warren Buffett and buy stocks that, “You want to hold forever” – then the answer to when you should sell your dividend stocks is: Never!  In practice, there are a few times over the past 15+ years when companies have significantly cut their dividend, and to me, this is a flashing red sign that something is majorly wrong with the company.

Cutting a dividend is usually seen as a last resort because it has such a dramatic effect on the stock price. Major shareholders hate the idea of sacrificing that cashflow – so when the decision is made, I usually sit up and take notice. 

That said, I prefer to do my homework before purchasing any single stock. Consequently, I almost never sell my dividend stocks, because I am quite confident in their long-term growth. 

The statistics around trying to jump in and out of the market just aren’t very good, and it really pays to be confident in your reasons for choosing a stock – so that you can not only hang on to your shares during tough times in the market – but also “Be fearful when others are greedy” and buy more shares of your favourite dividend stocks when prices are down.

“What are the best dividend stocks?”

Well, clearly if you’ve read this far into our article you know what our choices are for best Canadian dividend stocks!  After years of personal dividend investing and research, I’ve come to the conclusion that the Dividend Stocks Rock way of judging dividend stocks by their “Dividend Triangle” is the best long-term way to value solid Canadian companies.  The main idea is to equally weight a company’s overall revenues, their Earnings-Per-Share (EPS), and their commitment to dividend growth over the long term.

I used to simply look at dividend yield as the “be-all and end-all” of dividend investing, but Mike has convinced me over the years that your long-term dividend payouts and capital gains are more secure by focusing on the three metrics of revenues, earnings, and dividend growth.

“Are there tax benefits for dividend stock investing in Canada?””

Gaining income from dividend stocks is one of the most tax-efficient ways that you can put your 

money to work for you.  This is especially true at lower income levels (such as those that many retirees typically account for at the end of the year) when the dividend tax credit really shines.

If you’ve never heard of the dividend tax credit or the dividend gross up, here’s the basic idea:

1) There are actually two different dividend tax credits: the Provincial Dividend Tax Credit and the Federal Dividend Tax Credit

2) The reason for these tax credits is rooted in the idea of tax fairness.  Because businesses pay corporate taxes before money is disbursed to shareholders, there is a process where your dividend income is “grossed up” and then a tax credit applied.

3) What this so-called “gross up + tax credit” often looks like in practice is that your income gets artificially inflated, but then a very generous amount of your taxes owing is cancelled by the government.

Here’s an example:

If I owned 1,000 shares of Enbridge (ENB) during 2020, and earned $3.20 for each share, then my dividend income would be $3,200.

Now, depending on what other income that I had, I would be placed in a specific tax bracket.  Obviously I might have dividend income from other stocks, I might also have worked for a living and have earned income.

If I made $60,000 in earned income, and Enbridge was the only stock that I owned, then the following calculation would be made for my dividend income:

$60,000 of earned income would be taxed by the federal government at a rate of 0% on the first $13,000, then a rate of 15-20.5% on the rest.  My $3,200 in Enbridge dividends would only be charged a tax rate of 7.56% after the dividend gross up and dividend tax credit were applied.

Looking at the provincial side of the equation.  If I lived in Ontario, my $60,000 of earned income would be taxed at a rate of 0% on the first $10,000, then a rate of 20-30% on the rest.  My $3,200 in Enbridge dividends would only be charged a tax rate of 

For many retirees, who no longer earn a paycheque, it’s possible to actually experience a negative tax rate on the first $30,000 or so of dividend payments – less than a 0% tax rate!

Most Recent News on Canadian Dividend Stocks in 2022

The world’s newspapers continue to be dominated by the receding (finally!) of the pandemic, and the tensions of war in Europe. While companies are enjoying the increasingly open state of affairs, the market appears not to know what exactly to make of the Putin vs The West dynamic.

While there is no doubt that conflict in Ukraine is tragic, and life on the ground there is going to be awful for some time to come, no one is sure exactly what it means for world trade and companies’ bottom lines. Obviously this is far from the most important thing when it comes to the situation, but when viewed from the context of your investment portfolio, it does merit your attention.

The increasingly instability will be bad for Canadian dividend stocks overall, just as it will be for the rest of the world, but there is a very high probability that it will be much less bad here than in most places. 

Russia is not a major trading partner for Canada, and because Canada’s dividend companies include a lot of energy stalwarts, even the increased oil & natural gas costs are a trade off for us, as opposed to a pure negative.

One interesting trend that may impact many dividend all stars is that of rising interest rates.  Governments around the world are employing various strategies to try and keep rates low for the time being, but the market appears to be anticipating some rate raises sooner rather than later. 

Traditionally, this would be very solid news for Canadian financial companies, and they are generally able to earn thicker profit margins in raising interest rate environments. It has some people concerned about utilities and pipelines as their debt-intensive business model is interest-rate sensitive to some degree, but from everything that I’ve seen, I remained unconcerned, as those companies have been able to fund long-term projects at incredibly cheap rates (many of which are locked in for 30+ years).  

In 2021 I predicted that Canada’s energy and midstream companies were still being unfairly valued due to investors’ being reluctant to climb back in after the massive pandemic shock that they suffered. That move has borne fruit in my portfolio as we have seen energy companies come back to much more normal valuations driven by increased profit levels and EPS numbers.  

Going forward, I think those companies still remain good overall bets, but I’m less confident about their “can’t miss” status due to the fact they’ve seen solid appreciation so far in 2022.

The main question on everyone’s mind continues to be, “Wow… well this whole pandemic thing did not happen as we thought. Inflation looks to be more and more of a worry… will the world’s governments be forced to raise interest rates (and maybe even corporate tax rates) and kill earnings growth?”  

Obviously no one knows the answer to this all-consuming question with 100% certainty, but I’d argue that on a balance of probabilities, I think there will be a ton of political pressure to not raise rates by very much (or at a quick pace).

The massive amount of money burning a whole in the pockets of many developed world consumers, combined with more people being incentivized back into the workforce through the expiration of income supports, should mean that profits keep right on rolling in for Canada’s top dividend payers.

If you’re looking to benefit from the trendy clean energy sector, while at the same time enjoying an ever-growing dividend yield – then you should definitely be considering Canadian Dividend Growth All Star Algonquin Power & Utilities (AQN.TO). 

While the “green play” has been cooling down over the last few months, and valuations have raced ahead of dividend yields for many top Canadian dividend stocks, Algonquin represents very solid value in the current market. 

Like many utility-based companies, it’s unlikely to become a “meme rocket”. Instead, you’ll have to be satisfied with a super secure revenue base, and an excellent track record of environmentally-friendly acquisitions. For some reason AQN seems to get much less love than the Brookfield family of companies, but at the present time we think it actually offers superior value going forward.

You simply can’t ignore a super safe Canadian dividend all star that is currently valued at a lower price than it was pre-pandemic, while also boasting a nearly 5% dividend yield. There aren’t many places in the market where you can find that level of dividend growth, dividend yield, and potential upside due to the greening of the economy. To see how it compares, read our recent article about the best utility stocks in Canada.

Further Research on Top Canadian Dividend Stocks

While I focused on Canadian dividend growth stocks in this article, when I want information on anything dividend-related (including US dividend stocks and undervalued dividend stocks) I also use the Dividend Stocks Rock (DSR) service by Mike Heroux. 

Mike is a longtime Canadian writer who started at the same time as myself.  He is a CFA and former financial adviser.  In the past I’ve subscribed to premium Globe and Mail channels, as well as popular investment newsletters such as Morningstar – Mike’s final product is simply the best

These days he specializes in not only researching Canada’s best dividend stocks, but also communicating the results of that research in creative, easy-to-understand ways.

FT

FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.
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Nav
1 year ago

how does the pe ratio play ? what should we be looking at in a pe ratio

jason
1 year ago

Thank you so much for the list ! what are your thoughts in regards to BCE and Telus payout ratio you think the dividends are safe even though they both are paying aprox 130% ?

Freedom45
1 year ago

New to this board. Just curious about the energy space further to Paul N and FT comments in Sept. I got burned in the downturn with energy (ie opportunity cost of holding a under-performing sector only to be hit by the coronavirus cyclical downturn that may last years). There is no question that the sector was cheap before the downturn, but thanks to the green folks, ESG investors, and the Canadian government, I am not sure that in the long term a proper multiple will ever return. I have no doubt that earnings and cash flow will return, as well as probably $100 oil due to chronic under investment, but it appears to me that these stocks – even SU and CNQ – are no longer buy and hold investments, but have become more like trades on the hopes of a large and quick spike in oil price. I am disappointed as I disagree with investors buying up cash-burning Tesla shares at huge multiples while selling Canadian energy stocks that were bringing in cash hand over fist, but seems to me that is unfortunately the way investing is going. Ultimately the sentiment could spread to TRP and ENB despite stable outlook (I still hold the pipelines though).

GYM
1 year ago

Great updated list. I recently bought some more Fortis myself.

For some reason, I thought Savaria was like a Cannabis company… turns out it’s exactly the opposite of ‘sexy’ haha!

Abad
2 years ago

FT, will you make a post about your BTTSX picks for 2020?

Editor
Kyle Prevost
2 years ago
Reply to  Abad

I know that FT is planning to do that one in a few months Abad!

Derek
2 years ago

where is BCE???? that’s been paying a nice dividend for years!!! not even a mention???

RICARDO
2 years ago
Reply to  Derek

I’ll second that. BCE is more expensive per share than T but pays a higher dividend so far. All the bloggers talk about compound interest well here is a case where the higher dividend payout can lead to higher compound purchases of equities.
Another one is IPL. Maybe a bit risky now because of their heartland project but none the less I have held them since 2003. Haven’t missed a dividend yet and have raided every year so far. My original purchase (2004) pays me 25% on COP

RICARDO

Paul N
2 years ago

I’m just curious about Suncor being on this list. Even back in 2007 the price was briefly higher than pricing in this month Sept 2019. So for 12 years, is just getting the quarterly dividend (now 4%) worth holding this stock for over that time? Just trying to understand the logic. It would have been better to just purchase more Emera, or even an ETF like XEI and take the 5% dividend (monthly distribution) and utilize the cash from it.

Philippe
2 years ago

What’s wrong with The Keg (KEG.UT aka KEG.UN)? 6.6% yield, slow and steady increases since 2011, 6.6% yield, 60% payout ratio, 1.89EPS

Newbie
2 years ago

Why is the payout so high in some cases such as energy companies?
I see above P/O higher than 200%!
How is this calculated?
How can such companies pay dividends twice more than their income??

van
2 years ago

please enlist me