Best Dividend Stocks

The Best Dividend Stocks in Canada for 2021

Dividend investing is one of the most popular investment strategies for both old and new investors. One of the biggest reasons is because even when stock prices fall, you still get paid dividends.

Many investors like to hold dividend stocks because of the steady stream of income they produce, the tax advantages that they provide, and because you can reinvest dividends to buy more shares.

Table of Contents

The Best Dividend Stocks

Since research shows companies that increase their dividends tend to perform better than those with high yields, the top dividend stocks below have a long track record of increasing their dividend. Many also don’t have the highest yield in their sector.

One important thing to note is that it’s possible that some of the companies mentioned below won’t increase their dividends this year. The Office of the Superintendent Financial Institutions, which regulates banks and insurance companies, banned dividend increases in March 2020 due to the pandemic.

If some of the financial companies mentioned above don’t raise their dividends this year, it wouldn’t be unprecedented. Canada’s big banks put dividend increases on hold during the global financial crisis. Sun Life also didn’t raise its dividend during that time, while Manulife cut its dividend in half.

While some publications will name their top 100 stocks, we’ve narrowed it down to 10 of the best dividend stocks in Canada.

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1. Brookfield Asset Management

Symbol: BAM.A (TSX)

Yield: 1.73%*

Years of consecutive dividend growth: 25

Brookfield Asset Management is involved in several different sectors, including infrastructure, real estate, renewable power, and private equity. The company has a presence in North and South America, Europe, the Middle East, and the Asia-Pacific region. Although the dividend yield is the lowest among the top 10 picks, the stock price has nearly doubled over the last five years.

2. Canadian National Railway

Symbol: CNR (TSX)

Yield: 1.73%*

Years of consecutive dividend growth: 25

Canadian National (CN) is one of the country’s two major railways. It serves customers across Canada as well as in the Southern and Midwestern United States. CN transports more than $250 billion in goods for several industries, including the automotive, coal, forestry, fertilizer, agricultural, metals and minerals, and food and beverage sectors.

3. Empire Company

Symbol: EMP.A (TSX)

Yield: 1.44%*

Years of consecutive dividend growth: 26

While Nova Scotia-based Empire Company may not be as well-known as some of its competitors, its retail operations (Sobeys, Safeway, IGA, Foodland, FreshCo, Thrifty Foods, Farm Boy, and Lawtons Drugs) can be found across Canada. The company holds a minority stake in Crombie Real Estate Investment Trust, which owns office, residential, and retail properties. Empire Company also has a minority stake in Genstar, a residential property developer in Ontario, Western Canada, and the U.S.

4. Fortis

Symbol: FTS (TSX)

Yield: 4.02%*

Years of consecutive dividend growth: 47

Fortis is an electric and gas utility with three million customers in Canada, the U.S., and the Caribbean. The company plans to add more wind and solar over the next few years and be coal-free by 2032. Fortis is targeting an average dividend growth rate of about 6% annually through 2025.

5. Intact Financial Corporation

Symbol: IFC (TSX)

Yield: 2.22%*

Years of consecutive dividend growth: 16

Intact is the largest property and casualty insurance company in Canada and a provider of specialty insurance across North America. The company’s most well-known brands are Intact Insurance and belairdirect. Intact recently agreed to purchase the Canadian, United Kingdom, and international operations of RSA (a U.K.-based insurer).

6. Royal Bank of Canada

Symbol: RY (TSX)

Yield: 3.84%*

Years of consecutive dividend growth: 10

Royal Bank of Canada is the largest bank in the country. Its main business segments are commercial and personal banking (including credit cards), capital markets, wealth management, insurance, and investor and treasury services. RBC offers services to 17 million clients in 36 countries.

7. Sun Life Financial

Symbol: SLF (TSX)

Yield: 3.49%*

Years of consecutive dividend growth: 6

Sun Life is one of the largest insurance companies in Canada. Its main line of businesses are group and individual insurance (including travel insurance), as well as wealth and asset management. Outside of Canada, the company has operations in the United States, the United Kingdom, Ireland, Australia, Japan, India, China, and other parts of Asia.

8. TC Energy

Symbol: TRP (TSX)

Yield: 6.11%*

Years of consecutive dividend growth: 20

Formerly known as TransCanada Pipelines, Calgary-based TC Energy operates three businesses: natural gas pipelines, liquids pipelines, and energy. Although the permit to build the Keystone XL pipeline was revoked, the company still plans to continue building a number of other projects. TC Energy operates in Canada, the U.S., and Mexico.

9. Telus

Symbol: T (TSX)

Yield: 4.72%*

Years of consecutive dividend growth: 17

Telus is one of Canada’s largest telecommunications companies. It offers wireless (including Koodo and Public Mobile), internet, television, home phone, and security services. Telus also offers weather tracking for the agricultural sector and electronic medical records to healthcare providers. The company is aiming to increase its dividend by 7% to 10% annually through 2022.

10. Thomson Reuters

Symbol: TRI (TSX)

Yield: 1.87%*

Years of consecutive dividend growth: 27

Thomson Reuters provides business information services to legal, tax, and accounting professionals. It’s also the owner of the international news organization Reuters. The company is controlled by the Thomson family, one of the richest families in Canada.

*As of March 5, 2021

What are Dividend Stocks and How Do They Work?

Simply put, a dividend stock pays a dividend in the form of cash to its shareholders on a regular basis. Most companies distribute dividends every quarter, although some pay monthly or annually.

Companies pay dividends to attract investors who are looking for income. Mature companies don’t need as much capital to reinvest and are more likely to pay a dividend.

On the other hand, growth companies usually don’t pay dividends because they reinvest their earnings to grow the business.

When you own a stock that pays a dividend, your total return depends on the stock’s capital appreciation (the increase in price) as well as the regular dividend payouts. When you own a stock that doesn’t pay a dividend, your total return depends on its capital appreciation.

Dividend Yield vs. Dividend Growth

When it comes to dividend investing, some dividend investors primarily focus on the yield. Unfortunately, that may not be the best decision.

A report from S&P Global (the company behind the S&P 500 Index) notes that a volatile economic situation and the potential decline on earnings, “high-yielding companies without strong financial strength and discipline may not be able to sustain future payouts and could be prone to dividend cuts and suspensions.”

On the other hand, companies that grow their dividends are typically more resilient when markets are unsteady. As a result, the report notes that investors who worry about market volatility may want to consider dividend growers.

The share price of companies that grow their dividends also tends to outperform companies that don’t raise their dividends as often.

Although the yield may start off lower, the combination of a rising stock price and an ever-increasing dividend can deliver a higher long-term return.

Our Final Thoughts

Dividend stock investing can be a very profitable investment strategy, but what matters is choosing a wide selection of dividend-paying stocks in a variety of industries. Having a well-diversified portfolio is better than betting on a few top stocks with a great dividend in one or two sectors.

Also, you should conduct your own research before buying a stock. Look at the payout ratio, earnings growth, the company’s major competitors, its debt levels, and other key investing ratios. That will help you determine whether or not a dividend stock is worth buying.

Frequently Asked Questions

Yes, dividend stocks can be held in a Tax-Free Savings Account (TFSA), a Registered Retirement Savings Plan (RRSP), or any type of account. It’s often recommended that Canadian dividend stocks be held in a non-registered account because you get to take advantage of the dividend tax credit.

However, it’s practical to hold them in a registered account if you haven’t maxed out your TFSA or RRSP. By holding Canadian dividend stocks in an RRSP, you can defer any taxes on the income earned until you make a withdrawal. By holding Canadian dividend stocks in a TFSA, you won’t have to pay tax on any dividend income at all.

Whether or not dividend stocks are good for students depends on their goals. If they plan on using the money invested to pay for school in the near future, then it’s not a good idea.

The typical rule of thumb is any money needed in the next five years should be held in a high-interest savings account or guaranteed investment certificates (GICs). If students are new to investing, an exchange-traded fund (ETF) is usually a better option because it’s more diversified than an individual stock. However, if they want to buy dividend stocks, they may want to dedicate a small portion of their portfolio to get a feel for owning individual stocks.

It depends on who you ask. There are cases for and against dividend stocks. Dividend stocks tend to produce a steady stream of income, and many consider them to be less volatile than stocks that don’t pay dividends.

However, dividend-paying companies can cut or eliminate their dividend at any time. They can also be fairly volatile if they’re in certain industries. For instance, some Canadian bank stocks fell nearly 50% from their 52-week highs during the 2020 stock market crash, while stocks in other sectors didn’t decline as much.

Still, research from RBC Global Asset Management shows that Canadian dividend stocks tend to outperform those that don’t pay dividends.

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