3 Dividend Champions From the Financial Services Industry

Three top dividend growth picks from Canada’s financial services industry for every income-focused stock portfolio.

| More on:
The Motley Fool

Canada’s financial services industry has proven to be a boon for investors with the top five banks continuing to report solid earnings growth, which has seen them regularly hike dividend payments over recent years.

This continuing strong growth along with the financial stability of the industry makes it a great place for investors to seek out steadily growing sustainable dividend yields for their income-focused portfolio.

Let’s take a closer look at three dividend champions that should form a core holding in any portfolio.

This bank’s U.S. growth strategy will unlock value for investors

Canada’s largest bank by assets is Toronto Dominion Bank (TSX: TD)(NYSE: TD) and its dividend payment has a staggering compound annual growth rate of 11% over the last 44 years. This can be attributed to the bank continuing to report record earnings, which allows it to hike its dividend, giving it a juicy yield of 3.4% and a very sustainable payout ratio of 50%.

All of these features make it a dividend champion, but what makes the bank stand out is its growth strategy, which is focused on expanding its U.S. retail banking and wealth management operations. The U.S. economy continues to perform more admirably than expected with falling unemployment and growing industrial activity helping to drive strong economic growth.

This will see TD Bank’s U.S. operations continue to grow in strength. For the last reported quarter ending  March 31, 2014, net income for its U.S. retail banking operations spiked a healthy 15% compared to the equivalent quarter in the previous year. The key drivers were solid loans and deposits growth, which will continue as the U.S. economic recovery gains greater traction and translates into further earnings growth and additional dividend hikes.

All of this makes Toronto Dominion a cornerstone holding for any dividend-focused stock portfolio.

This life insurer’s conservative approach makes it a solid candidate for any portfolio

Canada’s third largest insurer, Sun Life Financial (TSX: SLF)(NYSE: SLF), came through the global financial crisis in better shape than many of its competitors due to its conservative approach to risk and financial management. Over the last five years Sun Life has steadily grown its net earnings, allowing it to build a solid financial position and reward shareholders through a series of dividend hikes.

Since 2000, Sun Life’s dividends have had an impressive compound annual growth rate of 8%, now giving it a tasty yield of 3.5%, which coupled with a payout ratio of 53%, is certainly sustainable.

However, more impressive is the company’s solid financial footing. This has allowed the company to grow its product offering, seeing it expand to offer a range of diversified financial services, including boosting its products and services offering for affluent investors.

This has given it solid growth prospects, which bodes well for earnings to continue growing and further dividend hikes to reward loyal investors.

Canada’s sixth largest bank offers a tasty dividend yield

Typically investors seeking dividend stocks from Canada’s financial services industry only look as far as the big five banks given their history of solid performance and regular dividend hikes.

But Canada’s sixth largest bank, the National Bank of Canada (TSX: NA) offers investors a solid dividend yield of 4%, which is higher than the majority of the big five, and a very conservative payout ratio of 45%, underscoring its sustainability.

The bank is also conservatively managed and has a solid balance sheet with only 0.2% of its total loans and acceptance classified as impaired loans, while the bank’s provisions for credit losses on commercial loans has also fallen. But the bank is not as strongly capitalized as its big five peers, with a tier one capital ratio of 8.7%, although this is significantly higher than the required regulatory minimum.

Like its peers the bank has been expanding its operations into wealth management and financial markets through a series of acquisitions and once bedded down these will continue to see its bottom line grow, boding well for further dividend hikes.

Canada’s financial services industry offers considerable potential for investors seeking sustainable dividends with juicy yields and the added security of investing in some of Canada’s largest and most well-known companies. This makes many of its larger participants key companies to consider when constructing a dividend-focused portfolio and the three aforementioned stocks offer considerable potential for investors.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Matt Smith has no position in any stocks mentioned.

More on Investing

Senior housing

3 Lesser-Known Reasons to Invest in an RRSP

The RRSP has so many more benefits that investors might be unaware of, and can be used for your benefit…

Read more »


TFSA Blueprint: 4 Canadian Stocks to Secure Your Future

Successful TFSA investing requires four steps and four Canadian stocks to secure your future.

Read more »

gas station, car, and 24-hour store
Energy Stocks

Is it Too Late to Buy Suncor Stock?

Suncor Energy stock has rallied big in the last year, but expect it to move higher as efficiencies keep rolling…

Read more »

Payday ringed on a calendar
Dividend Stocks

TFSA Monthly Money: How to Generate Consistent Tax-Free Passive Income

Adding these two attractive Canadian dividend stocks to your TFSA now could help you earn reliable monthly passive income for…

Read more »

analyze data
Dividend Stocks

3 Magnificent TSX Dividend Stocks to Buy and Hold Forever

Do you want to hold some quality dividend stocks for the decades ahead? Here are three stocks worth holding for…

Read more »

Double exposure of a businessman and stairs - Business Success Concept
Tech Stocks

Up 51% This Year: This Canadian AI Stock is Still Down 65% From Its Highs – Time to Buy?

Copperleaf Technologies (TSX:CLPF) stock has shown positive momentum as the AI stock attempts a recovery. Can shares rise 180% to…

Read more »

Oil pipes in an oil field
Energy Stocks

TSX Energy Sector: Best Stocks to Buy in May 2024

Energy stocks like Suncor are generating massive amounts of cash flows and paying out significant dividends.

Read more »

Dividend Stocks

How Much Will Canadian Utilities Pay in Dividends This Year?

Investors can stabilize their long-term stock portfolio returns by accumulating quality utility stocks on meaningful dips.

Read more »