The Motley Fool

2 Top Canadian Dividend Stocks to Buy on the Dip

Image source: Getty Images

Recent headlines relating to a sharp decline in stock markets across the globe and fears of a worsening coronavirus pandemic have seen many stocks roughly handled over the last week. While U.S. stocks have been hit hard, with the Dow Jones Industrial losing 5% over the last month, the TSX has fared far better, despite sharply weaker oil, to see the benchmark S&P/TSX Composite Index lose a modest 1.5%. Regardless of rising short-term geopolitical and economic risk, including growing fear of a global economic downturn, now is the time to continue adding quality dividend stocks to your portfolio.

Leading fuel distributor

One stock that stands out for all the right reasons and has proven resistant to market slumps while rewarding shareholders with regular dividend hikes and a sustainable dividend yielding 2.6% is Parkland Fuel (TSX:PKI). The company has lost around 3% over the last month, leaving it attractively valued, making now the time to buy.

Through a series of accretive acquisitions over the last six years, Parkland has become one of the largest independent fuel and petroleum product distributors in North America. It is also the largest independent fuel distributor in the Caribbean.

Parkland is on track to deliver some solid 2019 results in early March 2020. Not only did it report record third-quarter 2019 results, but it raised its guidance, boosting forecast annual EBITDA by 6.4% compared to earlier estimates to $1.24 billion. There is every indication that Parkland will achieve that target and EBITDA will continue to grow, as synergies are unlocked from earlier deals and due to the completion of five acquisitions since the start of 2019.

That will give Parkland’s market value a solid boost and likely see another dividend hike. Importantly, Parkland offers a dividend-reinvestment plan (DRIP), where investors can reinvest the payment to acquire additional shares at a 5% discount to market value with no transaction costs charged. That allows you to unlock the power of compounding, which, over the long term, can accelerate the pace at which wealth is created.

Parkland has delivered considerable value over the last decade, gaining 535%, or a compound annual growth rate (CAGR) of 20% if dividends were reinvested compared to 16.4% if they were taken as cash.

Rapidly growing retailer

Another top dividend-growth stock to consider is Dollarama (TSX:DOL) which has plunged by a whopping 18% over the last month, leaving it attractively valued making now the time to buy. The dollar store retailer is exposed to a series of risks because of the coronavirus pandemic, notably an inability to restock product inventories because of the growing shutdown of China’s cities and manufacturing sector. Dollarama is also exposed to the ongoing meltdown of traditional brick-and-mortar retailers caused by the rapid uptake of e-commerce and online retailing, with many platforms seeking to expand their product offerings.

Nonetheless, market’s perception of risk appears overblown, creating an opportunity to acquire a top Canadian growth stock at an attractive valuation, as reflected by Dollarama trading at 19 times its forecast sales. While that number does appear high, it is lower than Dollarama’s trailing price-to-earnings ratio of 21 and is appropriate for such a high-growth stock.

Over the last decade, if dividends were reinvested, Dollarama has delivered a whopping 1,043% return for loyal shareholders over the last 10 years, which is a stunning CAGR of 27%. There are signs of further solid growth ahead.

Dollarama recently acquired a 50.1% stake in Latin American dollar store operator Dollarcity, giving it access to Guatemala, El Salvador, and Colombia where that company has 58, 48, and 104 stores, respectively. Those economies are among some of the fastest growing and developing in the region, giving Dollarama’s earnings a solid boost.

For the fiscal third quarter 2020, Dollarama opened 21 new stores, giving it a total of 1,271 stores in Canada. It also experienced 5.3% year-over-year sales growth and a 4.3% increase in EBITDA, while confirming its fiscal full-year 2020 guidance.

While the current difficult operating environment may have a short-term impact on Dollarama’s performance, it will continue to deliver considerable value over the long term, making now the time to buy.

The 10 Best Stocks to Buy This Month

Renowned Canadian investor Iain Butler just named 10 stocks for Canadians to buy TODAY. So if you’re tired of reading about other people getting rich in the stock market, this might be a good day for you.

Because Motley Fool Canada is offering a full 65% off the list price of their top stock-picking service, plus a complete membership fee back guarantee on what you pay for the service. Simply click here to discover how you can take advantage of this.

Click Here to Learn More Today!

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 of the stocks mentioned.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.