Dividend investors should be interested in looking for the strongest and most profitable companies that also trade at attractive valuations. Canadian Tire (TSX:CTC.A) and The North West Company (TSX:NWC) are two Canadian dividend stocks that are looking attractive now. Owning these stocks in a TFSA will allow you to receive their growing dividends as well as gains from stock price appreciation tax-free.
Canadian Tire
Canadian Tire offers a range of retail products and services in Canada. The company operates in three segments: Retail, CT REIT, and Financial Services.
In the first quarter, Canadian Tire e-commerce sales increased 44% year over year. At the height of the pandemic, the company said daily orders had increased 1,600% to over 80,000 a day.
Despite record business shutdowns and unemployment, the firm’s real estate sector, CT REIT, said that nearly 97% of tenants had paid their rent by May 1, 2020.
But, most importantly, the company has been able to maintain high liquidity during this pandemic. Canadian Tire has been able to obtain $650 million in additional credit from Canada’s major financial institutions and has deferred most of its major capex commitments until next year. The company also made its final share repurchase during the quarter for $107.8 million before suspending the program.
In terms of dividends and dividend growth, Canadian Tire is one of the top TSX companies in the retail sector.
The company has increased its dividends for nine consecutive years and is a Canadian Dividend Aristocrat. It has one of the fastest-growing dividends in the consumer cyclical sector with a five-year annual growth rate of 18%.
While there is a strong possibility that dividend growth will stop in 2020, it is something we expect from the vast majority of companies that progress during the pandemic. The company should be able to maintain its current dividend.
The dividend yield is close to 4%. Canadian Tire’s stock valuation is quite low. Shares trade at less than 10 times forward earnings.
The North West Company
The North West Company is a retailer of food products and services for rural communities and urban areas of Canada, Alaska, the South Pacific, and the Caribbean. It operates 250 stores under the trade names Northern, NorthMart, Giant Tiger, Alaska Commercial Company, Cost-U-Less, and RiteWay Food Markets. The North West has annualized sales of approximately $2 billion.
On June 10, the company reported revenues of $592.6 million for the first quarter of fiscal 2021, exceeding expectations by $509 million, while same-store sales increased by 15.5%. Adjusted EBITDA, however, jumped 33% year over year to reach $59.8 million.
The North West Company attributed the excellent financial results to lower prices aimed at increasing market share, local purchases, and government support payments.
The North West is also investing to increase its online presence. Investing in digital platforms integrates the company’s store network to provide a more convenient shopping experience for customers and reduce operational redundancies.
The North West Company is also a Canadian Dividend Aristocrat. The company has a solid history of providing shareholder returns with a focus on growth and dividend yield. It started paying a dividend in 2011. The dividend yield is impressive at 4.4%. The North West’s five-year dividend-growth rate is 5%. The stock has a forward P/E of 16.
