Income Investors: Check Out These 3 Underrated Dividend Machines

Dividend investors are wrongfully overlooking great stocks such as Great-West Lifeco Inc. (TSX:GWO), North West Company Inc. (TSX:NWC), and Crombie Real Estate Investment Trust (TSX:CRR.UN).

| More on:

There are certain dividend stocks that get all the attention.

These stocks have a few things in common. They tend to be huge businesses, owned by a large sampling of retail investors. They also tend to be businesses that touch just about everyone’s lives in some way. Sectors like telecoms, utilities, and banks tend to give us the majority of these investing opportunities.

But by focusing on these well-known sectors, investors are doing themselves a disservice. There are dozens of interesting dividend stocks in Canada, companies with good businesses, solid growth plans, and best of all, attractive dividends with the potential to hike these payouts.

Here are three of the best dividend stocks that I don’t think get the attention they deserve.

Great-West Life

Manulife Financial and Sun Life Financial get much of the attention in the insurance space, but there’s a legitimate argument to be made that Great-West Lifeco Inc. (TSX:GWO) is a finer company.

First of all, we can look at the relative 10-year performance of each. Both Manulife and Sun Life are down over the last decade, at least based on the share price alone. Great-West is up. And remember, Manulife cut its dividend after the financial crisis. Great-West didn’t.

Great-West also trades at a very reasonable earnings multiple, right around 13 times trailing earnings. Earnings are expected to improve in 2016, with the forward P/E ratio coming in at 11.5 times analysts’ expectations. Insurance premium growth continues to be strong, and assets under management in the wealth management business have been bumped up nicely with the acquisition of a company in Ireland.

Last, but certainly not least, is the company’s dividend. The current payout is $0.35 per quarter, which was increased some $0.02 per share already in 2016. With a payout ratio of just 50.5% of earnings, look for dividend increases to be the norm in the next few years. The current yield on this stock is 3.8%.


Naysayers have one interesting criticism of the retail REIT business. What happens if buying stuff online becomes so dominant that traditional retailers run into real problems?

One part of retail I think is pretty insulated from that threat is grocery stores. Grocery delivery has existed in a primitive form for decades now, but has never been widely used. Customers are used to going to the store, and delivery doesn’t really make sense except in certain dense urban markets.

This is good news for Crombie Real Estate Investment Trust (TSX:CRR.UN), one of Canada’s largest owners of grocery store-anchored retail space. The company owns more than 250 different properties which span 17.4 million square feet of gross leasable area. The majority of those locations have either a Sobeys or a Safeway store as the largest tenant.

Grocery stores are good tenants. Business is usually pretty steady, and they pay for any improvements to the property, leaving the real estate company to distribute most of its earnings to shareholders. Crombie’s payout ratio for 2015 was 93% of adjusted funds from operations. That’s normally a little high for the REIT universe, but the company should be able to maintain the payout of 6.4%.

North West Company

Retail is normally a pretty tough business. Customers are price sensitive, and they know similar products are available in many other places. North West Company Inc. (TSX:NWC) is an attractive investment because it doesn’t suffer from many of these downfalls.

North West stores are often the only store in town, located in rural spots in Canada’s north. Since these stores are the only place for customers to get provisions for miles, they can charge whatever they want. This leads to much better net margins than more traditional competitors.

Earnings are expected to grow in 2016, pushing down the company’s forward P/E ratio to approximately 15 times earnings, compared to 20 times today. This should be enough for it to easily cover its 4.4% yield. In fact, with a payout ratio of approximately 70%, the dividend could even go up in the next year. Either way, investors are still getting a nice yield to own a good business.

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 Nelson Smith has no position in any stocks mentioned.

More on Dividend Stocks

Close up shot of senior couple holding hand. Loving couple sitting together and holding hands. Focus on hands.
Dividend Stocks

These 2 Canadian Dividend Stocks Are a Retiree’s Best Friend

These large-cap Canadian dividend stocks can supplement your income post-retirement.

Read more »

edit Balloon shaped as a heart
Dividend Stocks

4 Top Stocks With High Dividend Growth to Buy in 2023 and Hold Forever

Are you looking for stocks you can buy and forget, while they keep giving you returns? Then these high dividend…

Read more »

money while you sleep
Dividend Stocks

2 “SWAN” Dividend Stocks for Passive Income (AKA “Sleep Well at Night” Stocks)

These SWAN dividend stocks are good buys today for passive income. They would be even better buys on further selloffs,…

Read more »

edit Colleagues chat over ketchup chips
Dividend Stocks

Are You 25 or Younger? Invest Just $75 Per Month for $197K by Retirement

Young investors don't need to invest a lot and don't need risky options. Just this one ETF and $75 each…

Read more »

Family relationship with bond and care
Dividend Stocks

Pensioners: 2 Cheap TSX Dividend Stocks to Buy Now for Passive Income

These top TSX dividend stocks now look oversold.

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

Passive Income: How to Make $586 Per Month Tax Free

Creating passive income of this magnitude will take time, but it will be well worth the wait!

Read more »

A golden egg in a nest
Dividend Stocks

Building Your Retirement Nest Egg? These Canadian Dividend Stocks Can Help

These top TSX dividend stocks have made some long-term investors quite rich.

Read more »

bulb idea thinking
Dividend Stocks

TFSA Investors: 2 High-Yield TSX Stocks With Great Dividend Growth

These top Canadian dividend-growth stocks now trade at discounted prices.

Read more »