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Top 10 Canadian Dividend Aristocrats to Buy Now

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·12 min read
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In this article, we will be taking a look at the top 10 Canadian dividend aristocrats to buy now. To skip our detailed analysis on Canadian dividend stocks, you can go directly to see the Top 5 Canadian Dividend Aristocrats to Buy Now.

When considering investing in dividend stocks, the most reliable options seem to exist within the categories of the dividend aristocrats, the dividend kings, and the dividend champions. As such, it comes as no surprise that most income investors looking to set up a dividend stock portfolio in light of the recent market downturn have been heavily leaning towards dividend aristocrats.

What is a Dividend Aristocrat?

Typically, a stock is considered a dividend aristocrat if it not only pays a dividend consistently but also raises its dividend yield continuously for at least 25 years. However, in Canada, the definition of a dividend aristocrat slightly differs. According to S&P Global, these companies must meet three requirements: they must have a market cap of at least $300 million, they must be listed on the Toronto Stock Exchange while being a member of the S&P Canada BMI, and they must have increased their dividends for at least five years consecutively.

Like other notable stocks such as Visa Inc. (NYSE:V), Bank of America Corporation (NYSE:BAC), and JPMorgan Chase & Co. (NYSE:JPM), dividend stocks have been receiving more attention from individual investors and hedge funds alike in 2022. Resultantly, dividend funds have been receiving inflows from the start of the year. This January, investors were reported to have poured $6.9 billion in US dividend funds, marking the highest net purchases of these securities since October 2006. The dividend fund which received the highest inflows that month was the Schwab US Dividend Equity ETF.

This trend has continued throughout the year, according to a CNBC survey of 400 chief investment officers, equity strategists, portfolio managers, and CNBC contributors which went public in March. Of the respondents, 30% stated that they were most likely to buy stocks paying high dividends for the rest of 2022. This widespread sentiment in the market stems from the unmatched performance of dividend stocks this year. According to the Wall Street Journal, as of this May, many high-yielding dividend stocks in the S&P 500 rose and beat the broader market. AT&T Inc. (NYSE:T), for instance, rose 14% up till March 2022, while Altria Group (NYSE:MO) rose by 12%. Dividend stocks in the S&P 500 were reported to have paid out a record $137.6 billion in dividends in the first quarter of 2022 alone, as per S&P Dow Jones Indices reports, with analysts expecting the record to be being broken in the current quarter.

Top 10 Canadian Dividend Aristocrats to Buy Now
Top 10 Canadian Dividend Aristocrats to Buy Now

Photo by Joshua Hoehne on Unsplash

Let's now take a look at the top 10 Canadian dividend aristocrats to buy now.

Our Methodology

Using Insider Monkey's hedge fund data, we have selected Canadian dividend aristocrats that proved to be popular among the 912 hedge funds we tracked in the first quarter of 2022. Additionally, we have ensured the most of the dividend stocks listed below have positive analyst ratings as of this June. The dividend stocks have been ranked on the basis of their dividend yields, from the lowest to the highest dividend yield.

Top Canadian Dividend Aristocrats to Buy Now

10. Canadian National Railway Company (NYSE:CNI)

Number of Hedge Fund Holders: 38

Dividend Yield: 2.1%

Number of Years of Dividend Growth: 26

Canadian National Railway Company (NYSE:CNI) is the largest railway company operating in Canada. It maintains a network of 19,500 route miles of track spanning Canada and the US. The company also provides vessels and docks, transloading and distribution, automotive logistics, freight forwarding, and transportation management services. It has been offering a dividend to its shareholders since 1996, making it one of the top Canadian dividend aristocrats to buy now.

This June, Deutsche Bank's Amit Mehrotra placed a Catalyst Call: Buy rating on the Canadian National Railway Company (NYSE:CNI) in light of his optimism regarding Canadian rails this year.

In the first quarter of 2022, 38 hedge funds were long Canadian National Railway Company (NYSE:CNI), with a total stake value of $8.4 billion. Of these hedge funds, TCI Fund Management was the largest stakeholder in the company, holding 36,699,825 shares worth $4.9 billion.

Canadian National Railway Company (NYSE:CNI) is a stock that has been offering investors long term gains like many other reputable names such as Visa Inc. (NYSE:V), Bank of America Corporation (NYSE:BAC), and JPMorgan Chase & Co. (NYSE:JPM).

9. Fortis Inc. (NYSE:FTS)

Number of Hedge Fund Holders: 10

Dividend Yield: 3.8%

Number of Years of Dividend Growth: 48

Fortis Inc. (NYSE:FTS) is an electric and gas utility company in Canada. It also operates in the US and the Caribbean countries. The company generates, transmits, and distributes electricity to hundreds of thousands of retail customers across these regions. The company is one of the oldest top Canadian dividend aristocrats to buy now, as evidenced by its dividend growth history.

National Bank analyst Patrick Kenny holds a Sector Weight rating on shares of Fortis Inc. (NYSE:FTS) as of this May.

Insider Monkey's first quarter of 2022 hedge fund data shows 10 hedge funds holding stakes in Fortis Inc. (NYSE:FTS) in that quarter, with a total stake value of $624 million. In comparison, nine hedge funds were long the stock in the previous quarter, with a total stake value of $517 million.

8. Royal Bank of Canada (NYSE:RY)

Number of Hedge Fund Holders: 21

Dividend Yield: 4%

Number of Years of Dividend Growth: 12

Royal Bank of Canada (NYSE:RY) is among the largest and most renowned banks operating in Canada. It offers diversified financial services across the globe and has steadily been paying stable dividends to its shareholders for over a decade. As such, it is among the top Canadian dividend aristocrats to buy now.

Argus analyst Stephen Biggar holds a Buy rating on shares of Royal Bank of Canada (NYSE:RY) as of this June in light of the company's promising fiscal second-quarter results.

The company has stated that its earnings in the fiscal second quarter of 2022 gained primarily from its Personal and Commercial Banking and Insurance operations. Royal Bank of Canada (NYSE:RY) has been faring well so far this year, having raised its quarterly dividend to $0.94 per share.

The largest stakeholder in the Royal Bank of Canada (NYSE:RY) is GQG Partners, holding 5,793,951 shares worth about $638 million. In the first quarter of 2022, 21 hedge funds were long the stock, with a total stake value of $855 million.

Gator Capital Management, an investment management firm, mentioned Royal Bank of Canada (NYSE:RY) in its first-quarter 2021 investor letter. Here's what they said:

“We own a position in Royal Bank of Canada (“RBC”) and are completing our due diligence on several other Canadian banks. Royal Bank is the #1 bank in Canada. It has a business mix similar to JP Morgan Chase (“JPM”) with strong retail and corporate banking businesses. It also has a significant investment banking and asset management business. From here, we believe Canadian bank stocks will generate attractive returns for shareholders in the medium and long term.

Here is more detail on our investment thesis for Royal Bank of Canada:

1. Bank with consistently high returns – RBC consistently posts Return on Tangible Common Equity (“ROTCE”) in the low 20%. In contrast, JPM has reported ROTCE between 12% and 19% over the last six years. We think this reflects the higher margins of the Canadian banking system.

2. Leading bank in Canada – RBC is the leading bank in Canada. It has the highest returns, the highest market share, and the highest valuation of the five major Canadian banks. We believe other stock market investors will favor RBC when Canadian banks regain favor.

3. Low relative valuation to US Banks – Canadian banks have had premium valuations compared to US banks for a few decades due to their higher and more consistent returns. Over the last 10 years, this valuation premium has almost disappeared. The chart below shows the price-to-tangible book ratio (“P/TB”) of RBC compared to JPM’s. As you can see, in 2011 RBC traded at 3x P/TB while JPM traded at 1x. Now, both banks trade at 2.5x P/TB.

4. Strong growth at City National – RBC’s US Subsidiary, City National Bank, is growing very quickly. RBC purchased City National in 2015. City National was an LA-based bank focused on high-net-worth customers. At the time of the purchase, City National had already expanded and gained traction in San Francisco and New York. Now, City National has branches in Washington, DC, Atlanta, Miami, Dallas, Minneapolis, San Diego, and Las Vegas. City National has a banking strategy similar to that of First Republic and is growing at a comparable rate. We would note that First Republic trades at 26x 2021 estimated earnings.

5. Solid management team – Chief Executive Officer, Dave McKay, has led the bank for the last seven years. He has been at RBC for his entire career and has run several of the business units as he climbed the corporate ladder. Rod Bolger has been Chief Financial Officer for almost five years and has worked at RBC for 10 years. Prior to joining RBC, Bolger worked at Bank of America and Citigroup. We think both men are good bankers and good stewards of shareholder capital.

6. Consistent capital management – RBC has had a consistent policy of reinvesting for organic growth, paying a dividend, and using excess capital to repurchase shares. None of the five major Canadian banks have cut their dividend payouts since World War II. At 3.7%, RBC’s dividend yield is higher than any major US bank.

7. Potential for a stronger Canadian dollar – The Canadian dollar loosely tracks the price of oil. It seems when crude oil is below $60 per barrel, the Canadian dollar trades at 70 cents compared to the US Dollar. When crude oil approaches $100 per barrel, the Canadian dollar trades closer to parity with the US dollar. We do not have a strong view on crude oil prices. Still, we would note that we seem headed toward a strong economic recovery from the pandemic, and crude oil prices generally reflect the level of economic activity.

For the last eight years, we have seen investors shorting Canadian banks due to the housing markets in Toronto and Vancouver. We believe this short thesis is stale and hasn’t come to fruition. We believe different dynamics drive the Canadian housing market than the US housing market in 2008. We do not see the banks engaging in risky lending practices. The substantial problem in the US market in 2008 was due to risky loans with low or no documentation and loans to subprime borrowers. We don’t see evidence of either of these practices in Canada. We admit that the residential property markets in Toronto and Vancouver appear very expensive, but we believe the pricing reflects the strong demand for housing in global cities with land-constrained markets. We think both Toronto and Vancouver will benefit from immigration policies in the US making it difficult for high-quality immigrants to enter. We compare Toronto and Vancouver to New York and San Francisco and see similar pricing. We would point out that both New York and San Francisco fared relatively well during the 2008 US housing crash. Also, we do not see concerning house pricing trends in the rest of Canada.

We do believe there are ... [read the rest of the letter here].

Like Visa Inc. (NYSE:V), Bank of America Corporation (NYSE:BAC), and JPMorgan Chase & Co. (NYSE:JPM), Royal Bank of Canada (NYSE:RY) is a stock promising reliability and profitability at once.

7. Toronto-Dominion Bank (NYSE:TD)

Number of Hedge Fund Holders: 21

Dividend Yield: 4.1%

Number of Years of Dividend Growth: 12

Toronto-Dominion Bank (NYSE:TD) is yet another Canadian banking and financial services company on our list of top Canadian dividend aristocrats to buy now. The company is known as North America's fifth-largest bank by total assets and market cap. The company operates through its Canadian Retail, US Retail, and Wholesale Banking segments.

Analyst Gabriel Dechaine at National Bank reiterated a Sector Perform rating on shares of Toronto-Dominion Bank (NYSE:TD) just this May.

There were 21 hedge funds holding stakes in Toronto-Dominion Bank (NYSE:TD) in the first quarter of 2022, while 17 hedge funds held stakes in the company in the previous quarter. Their total stake values were $188 million and $292 million respectively.

6. TELUS Corporation (NYSE:TU)

Number of Hedge Fund Holders: 15

Dividend Yield: 4.5%

Number of Years of Dividend Growth: 18

TELUS Corporation (NYSE:TU) is a communication services company offering telecommunications and information technology-related products and services in Canada. The company has offered a stable dividend of over 4% to its shareholders for over 15 years, making it a renowned name on our list of the top Canadian dividend aristocrats to buy now.

BMO Capital's Keith Bachman holds an Outperform rating on shares of TELUS Corporation (NYSE:TU) as of this June.

The same month, the company announced its acquisition of LifeWorks. The acquisition is expected to benefit TELUS Corporation (NYSE:TU) by bringing in additional revenue of $1.6 billion, allowing the company to enjoy increased growth and profitability. It is set to be completed in the fourth quarter of 2022 at the latest.

Our hedge fund data shows 15 hedge funds holding stakes in TELUS Corporation (NYSE:TU) in the first quarter of 2022, worth approximately $212 million. Of these hedge funds, Renaissance Technologies was the largest stakeholder in the company, holding 3,490,166 shares worth approximately $91 million.

Just like Visa Inc. (NYSE:V), Bank of America Corporation (NYSE:BAC), and JPMorgan Chase & Co. (NYSE:JPM), TELUS Corporation (NYSE:TU) is a stock many hedge funds are piling into this year.

 

Click to continue reading and see the Top 5 Canadian Dividend Aristocrats to Buy Now.

 

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Disclaimer: None. Top 10 Canadian Dividend Aristocrats to Buy Now is originally published on Insider Monkey.