By Mark Brown on December 16, 2019

Canada’s Best Dividend Stocks 2020

By Mark Brown on December 16, 2019

We’ve graded the largest, most liquid Canadian dividend stocks based on Yield, Stability and Value. To earn top marks, each company must demonstrate its ability to provide a steady flow of income to investors, at a reasonable price.

Overview Top 100 Dividend Stocks Past Performance Methodology

When you sift through this year’s Dividend All-Stars, you’ll find no shortage of high-yield stocks. Almost one in five companies has a yield above 5%, up slightly from last year. High yields can be like a drug for income investors; they are hard to resist.

But before you plunge in, it’s vital to remember yield has another meaning: caution.

Over the past year, there have been mounting concerns about the global economy. Rising geopolitical risks, like Brexit and U.S.-China trade tensions, falling interest rates and slowing earnings growth have been steering investors into dividend stocks, driving up their valuations. “It’s hard to find cheap dividend stocks today,” contends Michele Robitaille, managing director at Guardian Capital LP, but she believes they are still the best option for investors right now. With all signs pointing to a recession, dividend stocks will offer investors some safety over the mid- and long-term, she says.

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As much as dividends can offer investors an incentive to own stock while waiting out rough markets, they are not without risk. Dividend stocks can suffer if a company has to cut its payout, and a slowing economy can increase the pressure on these stocks as well. “Bad balance sheets and cyclical earnings can hurt a company’s ability to distribute income when the growth outlook is weaker,” says Don Newman, the portfolio manager who oversees Fidelity’s $1.5-billion Canadian Dividend Fund. Investors need to be keenly aware of how sustainable those dividends are; sometimes they’re not.

Perish the thought, but it happens. Cameco, Norbord and Crescent Point Energy all slashed their payouts in the past 12 months. Over the past five years, one in 10 of the 100 companies on this year’s list trimmed their dividends.

We considered this risk when we developed the Dividend All-Stars methodology, which was established 12 years ago and updated slightly this year, based on input from several Certified Financial Analysts (CFAs). While we seek out companies with plump yields, we focus on the ones that can maintain them. We place as much weight on a company’s ability to maintain and grow its dividend as we do on its yield. This squeezes out many of the oversized yields, which reach as high as 13% this year.

Before we offer our final grades, we also want to be sure we’re identifying companies that provide value. As much as dividend investors love the concept of being paid to wait, we don’t think investors want to extend that period by overpaying upfront for that privilege. And as Robitaille points out, the utility and REIT sectors, which have a strong history of being income-generating stocks, are not as cheap as they were at the start of the year.

Ten stocks are worthy of A-grades this year, including four-returning All-Stars from the 2019 edition of this report. All of these companies are in an excellent position to grow their dividends again due to their low payout ratios, strong earnings potential and low debt levels.

Typically, our All-Stars team includes strong representation from the big banks, but not this year. It’s been a mixed year for the banks amid concerns about the housing market and the broader economy, although that sentiment is starting to shift again.

CIBC is the only bank to earn top marks with its 5.15% yield. The higher yield, in this case, is indicative of a down year rather than a dramatic increase in its quarterly distribution. Subsequently, between its healthy growth in its earnings in recent years and its relative value, it’s an interesting opportunity.

Insurance companies tend to perform well on the Dividend All-Stars, but investors need to be mindful of the shifting interest-rate environment. Falling interest rates may be a bit of a drag on these stocks, warns Robitaille, although they are trying to immunize themselves by implementing hedging strategies to minimize the impacts of interest rates and equity market movements on their underlying investment books.

While high yields can be a warning sign, they can also suggest a company is undervalued. That’s the principle behind the Dogs of the Dow strategy, where investors buy the blue-chip stocks with the highest yields and sell them at the end of the year.

If a sharp increase in yield can indicate that a stock is oversold—meaning the share price has fallen too far, too fast—then Methanex may be a company worth a closer look. While Methanex isn’t a blue-chip stock, it is the world’s largest producer and supplier of methanol to major international markets in North America, Asia Pacific, Europe and South America. In case you’re wondering, methanol is an extremely important ingredient used to produce hundreds of everyday industrial and consumer items, including paints and plastics, although the greatest demand comes from the energy sector.

The Vancouver-based methanol producer was beaten up last year. Shares fell by almost half due to low methanol prices and a change in strategy that has upset one of its major investors. The company is undertaking a major capital investment program, which could put some stress on its balance sheet and limit the company’s ability to buy back shares.

Still, it ticks all the right boxes. The company’s payout ratio is still below 30% and it has a history of increasing its dividend, plus its high yield (which is now at 4% up from 1.9% in 2018) and current valuation has investors kicking the tires.

Here is a summary of this year’s A-list stocks:

MoneySense A-Team

* Denotes repeat All-Star

Company	Ticker	Industry Group	Price (Oct 23)	Market Cap ($M)	Total 1-year return	Total 5-year return	Dividend yield	Dividend Growth (5Yr Avg)	Payout ratio	Debt/Equity	Return on Common Equity	Price/Cash Flow	3-year earnings growth	Price/Earnings	Price/Book	Grade
Canadian Imperial Bank of Commerce*	CM	Banks	111.89	$49.779	3.7%	6.9%	5.1%	7.3%	48.4%	138.69	15.12	3.95	13.8%	9.22	1.41	A
Genworth MI Canada Inc.	MIC	Insurance	52.6	$4.525	46.5%	12.7%	3.9%	22.7%	42.7%	10.87	10.23	9.42	4.3%	10.23	1.11	A
Great-West Lifeco Inc.	GWO	Insurance	31.18	$28.937	10.2%	4.5%	5.3%	5.8%	62.3%	23.57	12.47	3.9	2.3%	14.27	1.49	A
iA Financial Corp. Inc.*	IAG	Insurance	61.11	$6.498	36.5%	10.0%	2.9%	11.0%	28.5%	15.76	12.56	7.5	18.7%	10.3	1.27	A
Imperial Oil Ltd.	IMO	Oil & Gas	33.21	$25.109	-18.4%	-7.1%	2.6%	9.5%	20.5%	21.15	12.74	10.2	27.3%	8.31	1	A
Magna International Inc.	MG	Auto Parts & Equipment	70.74	$21.900	18.2%	7.9%	2.7%	19.1%	17.7%	39.28	22.66	6.89	4.5%	8.31	1.47	A
Manulife Financial Corp.	MFC	Insurance	24.53	$47.789	25.8%	7.3%	4.1%	12.9%	33.9%	70.38	13.25	2.43	28.1%	8.42	1.06	A
Methanex Corp.	MX	Chemicals	47.84	$3.645	-42.3%	-3.3%	4.0%	13.4%	29.6%	80.66	25.9	6.89	41.6%	8.43	1.91	A
Power Corp. of Canada*	POW	Insurance	30.83	$13.117	20.7%	5.8%	5.3%	6.3%	71.8%	26.22	7.28	1.66	-10.0%	12.3	1.01	A
Power Financial Corp.	PWF	Insurance	31.04	$20.614	15.3%	4.1%	5.9%	5.1%	71.8%	47.95	11.12	2.57	-0.9%	10.92	1.19	A

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Prized prospects:

When you dip into the B-grade stocks, you’ll find better sector diversification, including companies from the utilities and real estate sectors, which are traditionally home to reliable dividend payers. This year 24 companies measure up as promising prospects.

While CIBC was the lone bank to earn an A grade this year, TD, BMO, Scotiabank and National Bank are solid prospects. Royal Bank, the largest company in Canada by market cap, was the only one of the Big Banks not to earn either an A or B rating.

MoneySense B-Team

Company	Ticker	Industry Group	Price (Oct 23)	Market Cap ($M)	Total 1-year return	Total 5-year return	Dividend yield	Dividend Growth (5Yr Avg)	Payout ratio	Debt/Equity	Return on Common Equity	Price/Cash Flow	3-year earnings growth	Price/Earnings	Price/Book	Grade
Atco Ltd.	ACO.X	Electric	47.41	$5.435	32.0%	2.7%	3.4%	13.8%	34.5%	147.45	14.07	34.84	26.7%	11.34	1.42	B
Bank of Montreal	BMO	Banks	97.71	$62.431	1.6%	7.8%	4.2%	5.6%	42.2%	223.65	14.12	5.97	7.6%	10.62	1.37	B
Bank of Nova Scotia	BNS	Banks	75.09	$91.641	13.7%	6.5%	4.8%	6.4%	51.7%	205.44	13.17	46.24	6.8%	10.51	1.44	B
Canadian Natural Resources Ltd.	CNQ	Oil & Gas	33.82	$40.196	-3.8%	0.2%	4.2%	10.8%	35.4%	64.5	14.45	8.63	-	12.64	1.16	B
Canadian Tire Corp. Ltd.	CTC.A	Retail	143.59	$9.081	-0.9%	4.6%	2.9%	18.4%	35.0%	103.17	17.14	20.87	1.6%	12.95	2.25	B
Canadian Utilities Ltd.	CU	Electric	38.65	$10.546	33.0%	3.1%	4.4%	9.7%	49.3%	159.71	18.77	121.22	21.7%	12.17	2.11	B
Canadian Western Bank	CWB	Banks	33.35	$2.908	11.6%	0.8%	3.4%	6.7%	35.5%	13.33	10.97	4.68	-6.8%	10.69	1.15	B
Capital Power Corp.	CPX	Electric	30.61	$3.424	10.0%	10.5%	6.3%	7.2%	63.7%	87.26	9.2	219.69	44.9%	15.8	1.05	B
Enbridge Inc.	ENB	Pipelines	47.83	$96.803	23.4%	2.8%	6.2%	16.1%	119.4%	87.98	7.98	43.61	125.6%	18.04	1.57	B
Gildan Activewear Inc.	GIL	Apparel	35.07	$7.143	-9.4%	2.3%	2.0%	24.0%	34.4%	34.55	15.66	19.89	12.8%	15.72	2.84	B
Husky Energy Inc.	HSE	Oil & Gas	9.52	$9.569	-50.8%	-18.3%	5.3%	0.0%	45.1%	29.3	7.75	-	-	11.42	0.47	B
IGM Financial Inc.	IGM	Diversified Financial Services	37.29	$8.885	24.0%	2.8%	6.0%	0.9%	74.0%	40.2	16.68	12.31	-0.2%	11.68	2.01	B
Inter Pipeline Ltd.	IPL	Pipelines	22.11	$9.183	9.0%	-3.0%	7.7%	5.8%	101.2%	142.72	17.52	-	11.5%	13.18	2.24	B
Keyera Corp.	KEY	Pipelines	30.33	$6.494	-4.6%	-3.9%	6.3%	8.0%	83.3%	85.51	16.54	-	25.0%	16.65	2.25	B
Linamar Corp.	LNR	Auto Parts & Equipment	43.3	$2.825	-17.8%	-4.8%	1.1%	4.8%	6.1%	65.43	13.97	6.65	10.6%	5.32	0.7	B
National Bank of Canada	NA	Banks	67.48	$22.655	18.1%	9.9%	4.0%	7.2%	42.0%	268.37	17.84	0.74	11.5%	10.87	1.86	B
Pembina Pipeline Corp.	PPL	Pipelines	46.84	$23.959	11.4%	4.7%	5.1%	6.5%	75.7%	52.33	13.09	24.14	46.6%	15.27	1.95	B
PrairieSky Royalty Ltd.	PSK	Oil & Gas	15.18	$3.543	-25.8%	-12.7%	5.1%	13.0%	173.3%	0.23	4.04	16.46	8.0%	33.42	1.37	B
Sun Life Financial Inc.	SLF	Insurance	58.82	$34.765	28.4%	12.4%	3.6%	7.3%	50.9%	17.66	11.16	9.92	4.6%	14.96	1.61	B
Suncor Energy Inc.	SU	Oil & Gas	39.8	$61.914	-5.4%	3.6%	3.9%	11.5%	43.2%	39.43	12.59	8.12	-	11.17	1.36	B
TFI International Inc.	TFII	Transportation	42.01	$3.467	3.7%	11.3%	2.3%	10.6%	24.1%	101.26	21.39	12.08	21.3%	12.28	2.37	B
Thomson Reuters Corp.	TRI	Media	86.85	$43.526	48.7%	19.9%	2.2%	40.1%	291.3%	34.86	38.22	122.76	46.5%	10.6	3.7	B
Toronto-Dominion Bank/The	TD	Banks	74.6	$135.760	7.1%	10.8%	4.0%	9.5%	44.8%	176.92	15.11	3.54	12.5%	11.3	1.68	B
TransAlta Renewables Inc.	RNW	Energy-Alternate Sources	14.13	$3.740	36.8%	10.4%	6.7%	4.2%	116.0%	38.9	9.24	11.66	6.6%	19.59	1.61	B
Tricon Capital Group Inc.	TCN	Diversified Financial Services	10.69	$2.074	6.6%	9.2%	2.6%	3.1%	29.0%	31.42	8.51	-	54.8%	9.71	0.99	B

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