The 5 Best Canadian Dividend Stocks To Buy In 2024

adminJune 5, 2024

Our analysts take a look at the best Canadian dividend stocks, all of which trade on the TSX. View our expert selections to find out what we view as the best Canadian dividend stocks, including those with high but safe dividends. Read on to find the top 5 Canadian dividend stocks to buy right now.

The 5 Best Canadian Dividend Stocks in 2024

Some of the best Canadian stocks offer above-average dividends. The advantage to companies that provide regular quarterly dividends is they tend to be mature companies on sound financial footing, with plenty of free cash flow. That makes it easier for them to handle economic downturns.

The dividends they pay incentivize value investors to hold onto the stocks for the long-term, because they’re receiving dividends in the interim. Those dividends can then be reinvested in the company or invested in other companies, but either way, they can help improve total returns for investors.

These five stocks all have dividends in the sweet spot – with yields above 4% but below 7%, making them steady and safe. All of their payout ratios are below 50% of free cash flow, meaning they are well-covered and in little danger of getting cut any time soon. All of the stocks are attractively priced, with most of them having a price-to-earnings ratio of 10 or below.

Ticker on TSX	Company	Performance YTD
CM	Canadian Imperial Bank of Commerce	+5.88%
FTS	Fortis	+0.22%
CCA	Congeco Communications	-12.31%
CWB	Canadian Western Bank	-18.21%
RUS	Russel Metals	-6.94%

An in-depth look at these top Canadian dividend stocks

A quick look at each of the five stocks and what makes them good investments right now. These stocks are trading at a discount right now because their shares have struggled this year, but they all have managed to raise their dividend.

1. Canadian Imperial Bank of Commerce: Average annualized 10-year return of 3.46%

The Toronto-based bank and financial services company serves more than 14 million personal banking, business, public sector and institutional clients, mostly in Canada and the US. The company operates in four segments, with its Canadian Personal & Business Banking responsible for 38% of the company’s revenue over the last 12 months, while Canadian Commercial & Wealth brought in 30% and Capital Markets & Direct Financial Services was responsible for 34% of its earnings. The smallest segment was its U.S. Commercial and Wealth segment at 3%.

In the second quarter, Canadian Imperial (TSX: CM) reported revenue of CAD 6.16 billion ($4.52 billion), up 8%, year over year, and EPS of CAD 1.79 ($1.31), up 2% over the same period last year. The company said the gains were due to higher revenue from increased net interest margin, volume growth and the impact of an extra day in the quarter, offset in part by a higher provision for credit losses and higher expenses. CIBC saw particular growth in its U.S. Commercial Banking and Wealth Management segment, with net income of CAD 93 million ($68 million), up 73%, year over year.

The company has increased its dividend at a compound annual growth rate of 5% over the past 15 years. Last year, it boosted its quarterly dividend by 3.4% to CAD 0.90 ($0.66) the 13th consecutive year it has increased its dividend. Its payout ratio is only 36.98%, so the dividend appears safe. It also did $1 billion in share repurchases from 2018 to 2023.

Sector: Banking
Stock ticker: CM
Stock price (1-year change): 15.68%
Market capitalization: 46.62 billion CAD
Dividend yield (TTM): 5.36%

2. Fortis: Average annualized 10-year return of 5.3%

Based in St. John’s, Newfoundland and Labrador, it is one of Canada’s largest utility holding companies with 10 independent electric and gas operations in Canada, the US, and the Caribbean serving 3.5 million customers. The company’s businesses are 99% regulated, so its growth is steady if not spectacular.

In many cases, utility companies such as the ones controlled by Fortis are subject to the vagaries of the weather to raise or lower consumption by consumers. However, its diversification, spread across 18 jurisdictions, provides more stability than an average utility company.

Fortis (TSX: FTS) just raised its quarterly dividend late last year by 4.4% to $0.59, the 50th consecutive year it has increased its dividend. It has said it plans to continue 4% to 6% average dividend growth for the next five years. That shouldn’t be difficult as the company has strong recurring revenue.

In the first quarter, it reported net income of $459 million, or $0.93 in EPS, up from $437 million and $0.90 in the same period last year. The company’s long-term goals include reducing direct greenhouse gas emissions by 50% by 2030. Fortis focuses on what it calls “low-risk” growth and its above-average dividend, consistent dividend growth as well as its low payout ratio of around 48% make it an easy choice for dividend investors.

Sector: Utilities
Stock ticker: FTS
Stock price (1-year change): -4.56%
Market capitalization: 27.18 billion CAD
Dividend yield (TTM): 4.24%

3. Cogeco Communications: Average annualized 10-year return of -1.77%

The Montreal company provides internet, video and phone services to 1.6 million customers in North America. It just announced that it will streamline its business operations by combining Canadian and U.S. telecommunications operations. This should allow it to build more efficient cross-border centers and the transition is set to take place by Sept. 1.

The shake-up should help Cogeco Communications (TSX: CCA) become more profitable. In the second quarter of 2024, revenue was down .08%, year over year, to CAD 731 million ($535.8 million) while EPS was CAD 2.20 ($1.61), up 0.5% compared to the same period a year ago.

It is preparing to launch mobile services in the US this year under its Breezeline brand and over the past 10 years, has grown its business with nine acquisitions of smaller broadband businesses.

Cogeco’s dividend and valuation makes it a keeper. The stock is trading at below seven times earnings and It has increased its dividend by 10% or more in each of the past 10 years. It raised its quarterly dividend by 10.1% late last year to CAD 0.854 ($0.62), the 13th consecutive year it has increased its dividend. Despite having the highest dividend yield of the five stocks in this report, its payout ratio is only 38%.

Sector: Telecommunications
Stock ticker: CCA
Stock price (1-year change): -18.05%
Market capitalization: 2.254 billion CAD
Dividend yield (TTM): 6.25%

4. Canadian Western Bank: Average annualized 10-year return of -1.42%

The bank and financial services company, based in Edmonton, is looking forward to potential rate cuts that would drive increased loan activity in the latter half of the year. The company is focusing on Ontario and what it says is an underserved mid-market commercial segment to grow its market share, which is concentrated mostly in Western Canada. It opened a banking centre in Toronto in the first quarter and plans to open another banking centre in Kitchener, Ontario this year to broaden its market.

Canadian Western Bank (TSX: CWB) reported second-quarter net income of CAD 76 million ($55.5 million), up 9%, year over year, and EPS of CAD 0.79 ($0.58), up 8% from the same period last year. Revenue increased by 8%, year over year, to CAD 285.9 million ($208.8 million).The company’s loan portfolio grew 1% sequentially, led by a rise of 6% of general commercial loans. For the year, it is estimating adjusted EPS between $3.50 and $3.60, compared to $3.58 in 2023.

The company just raised its quarterly dividend by 3% to CAD 0.35 ($0.26) and it is 6% more than it was the same time last year. It is well-covered with a payout ratio of 42.72%.

Sector: Banking
Stock ticker: CWB
Stock price (1-year change): -0.71%
Market capitalization: 2.442 billion CAD
Dividend yield (TTM): 5.30%

5. Russel Metals: Average annualized 10-year return of 0.43%

The Mississauga, Ontario company is a metals distribution firm that caters to various segments, including service centers, energy field stores, and steel distributors. The company just got approval for its acquisition of seven Western Canadian and U.S. carbon plate Service Center locations from Samuel, Son & Co., Limited, with the CAD 225 million ($164.4 million) deal expected to close in the third quarter. The company expects steel consumption to pick up because of onshoring and infrastructure spending in Canada and the US.

Russel Metals (TSX: RUS) is coming off a down first quarter. It reported CAD 1.06 billion ($770 million in revenue, up 4% sequentially but down 10.6%, year over year. EPS was CAD 0.82 ($0.60), up 5% from the prior quarter, but down 17% from the same quarter a year ago. Much of the reason for the decline was due to lower volumes and lower selling prices. One positive is that the company increased its gross margin to 22.4%, compared to 21.3% in the fourth quarter of 2023 and 21.9% in the first quarter of 2023.

The company remains focused on delivering an above-average dividend. It raised its dividend by 5% this year to CAD 0.42 ($0.30), the second consecutive year it has increased it. The payout ratio is only 40.25%, so it is well covered, leaving room for more growth. It also did $15 million in share repurchases in the quarter. Considering its potential growth and that it is trading for less than nine times earnings, it appears to be a bargain.

Sector: Industrials
Stock ticker: RUS
Stock price (1-year change): 4.70%
Market capitalization: 2.283 billion CAD
Dividend yield (TTM): 4.26%

What is a dividend stock?

Dividend stocks are publicly traded companies that pay out a portion of their profits to shareholders on a regular basis. Dividends are usually paid on a quarterly basis, but can be paid on a monthly, annual or semiannual basis. Not all companies pay out a dividend as some prefer to reinvest all of their profits back into their businesses. The companies that do pay dividends are sharing their success with shareholders.

Dividends can be paid in cash or reinvested in additional shares of stock. A company’s board of directors makes the decision on what kind of dividend and how much will be paid out. The most important dates to be aware of are the payout date and the ex-dividend date. The ex-dividend date is the cut-off date to get paid the declared dividend and is usually one day before the record date — the day a list of eligible shareholders is compiled. To receive the dividend, you’ll need to be an eligible shareholder before the ex-dividend date.

Pros and cons of investing in Canadian stocks

The primary advantage to dividends is they can provide a steady stream of income. This is particularly attractive to any investor looking to make money off their investments without cutting into their capital and for that reason, dividend stocks are attractive to senior investors.

Another advantage to dividend investing is the companies that provide dividends are typically more stable and are usually profitable. That also means that their shares are generally less volatile and less prone to huge drops. Companies with steady dividends tend to attract long-term investors who are less likely to bail at the first sign of bad news.

One of the disadvantages of dividend investing is that dividend stocks, being more mature, tend to have slower growth than other stocks. On top of that, by not reinvesting all their profits into growth, their dividends can reduce the amount of money they put into mergers and acquisitions or research and development, both of which can help a company grow. It’s also worth noting that dividends are taxed as ordinary income, which can be less tax-efficient than taxes from capital gains that come with selling stocks. On top of that, it’s worth noting that dividends are not guaranteed and sometimes when a company does cut a dividend, it can send a stock into a downward spiral.

Canadian dividend stocks FAQs

How do I invest in Canadian dividend stocks?

There’s really no difference in the process of investing in dividend stocks compared to those that don’t have dividends. The step to investing in a dividend stock should begin with research. Check out the dividend yield for a stock and focus on companies with a history of maintaining or growing their dividends. Examine company reports to gauge a company’s financial health, especially to see how profitable it is and how capable it is of continuing to grow its dividend.

Check on industry trends. Does the company have economic advantages against its competitors and are there patterns that could help companies in that industry increase sales and profits?

Take a look at stock screeners to compare stocks, as well as compare their financials, especially taking care to examine companies in the same industry. There are various stock tips services that can provide helpful information with your decision as well.

Why are dividend stocks popular?

Dividend stocks provide a level of security to investors, even during downward economic periods. If the overall market is headed downward, some stocks can buck that trend, but most won’t, particularly in a prolonged period of economic recession, such as the Great Recession from 2007 to 2009. However, dividends are generally still paid whether the overall market goes up or down.

In the long run, dividends, especially those that are reinvested, can increase how much you are paid back on your initial investment. Even if a stock doesn’t see much price appreciation, if it is offering a dividend, investors can predictably make money off their investments.

Do I need to pay tax on dividend stocks in Canada?

The short answer is yes. However, there are tax advantages to investing in Canadian dividend stocks. It makes sense to check with an adviser on the best tax strategy for you. However, there are some basic tax considerations.

Canadian Dividend Tax Credit: Canadian dividends are eligible for the dividend tax credit, which may reduce the amount of tax you pay on the dividends. This credit helps to offset some of the tax burden on these investments.

Tax Rates: The effective tax rate you pay on dividends depends on your marginal tax bracket. Due to the dividend tax credit, the tax rate on Canadian dividends is usually lower than your tax rate on other types of investment income, such as interest from a bank account.

Registered vs. Non-Registered Accounts: How dividends are taxed depends on whether you hold the stocks in a registered account (like an RRSP or TFSA) or a non-registered account. In a registered account, dividends may grow tax-deferred or tax-free, depending on the account type.

Methodology: How we made our picks

We looked for the stocks of stable, Canadian companies that have above-average dividend yields of 4% to 7% while still keeping their payout ratios below 50%, meaning that they all have room for continued dividend increases. We also looked for companies that were underpriced compared to their peers and could benefit from trends to see earnings growth this year.

We also sought companies that, though they provide a dividend, are still able to find avenues for growth. For example, Canadian Western Bank is broadening its market with new operations in Toronto and Kitchener, Ontario while Russel Metals just bought seven service centers that will allow it to grow sales.

A key question was a company’s dedication to its dividend and all of the companies we chose have paid a quarterly dividend for more than a decade, led by Fortis’ history of 50 consecutive years of dividend increases.