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TSX Stocks: Why Dividend Aristocrats Are the Best Investments

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2020 has been an important year for investing in TSX stocks. In addition to being presented as one of the best buying opportunities in over a decade this year, investors have also learned a lot of valuable lessons.

One of the main takeaways for Canadians is the importance of having a resilient investment portfolio at all times. These black swan events that cause massive market selloffs often come out of left field.

And since we get no warning for the major financial market crash that’s about to manifest, it’s crucial investors own the highest-quality stocks, so you don’t get caught off guard.

Where to find the highest-quality TSX stocks

When looking for high-quality TSX stocks, they will always have a few of the same crucial characteristics.

First and foremost, the best companies to invest in must be dominant in their industry. Furthermore, that industry should be a staple of the economy with consistent long-term growth. A dominant company in a maturing industry won’t be nearly as attractive as an investment in a company that’s growing its slice of a growing pie.

Besides that, it’s also crucial that there are attractive economics around the core business operations. This means a sustainable business model that can provide significant cash flow gains.

You’ll also want to look for companies with outstanding management teams and a resilient financial position. These are the TSX stocks you can count on to both protect and grow your capital.

It’s not necessary but often recommended that you choose only companies with long track records of proven performance. This way, you have a good idea of how it operates in the economy and what strengths and weaknesses it may have.

A lot of TSX stocks with these above characteristics will usually pay dividends. And because these top stocks likely all have a long track record of consistent performance, they have probably been paying dividends for years.

That’s why often the best long-term investments can be found on the Canadian Dividend Aristocrats list.

Canadian Dividend Aristocrats

Dividend Aristocrats are stocks that have essentially increased their dividends each year for at least five years. The point of this list is to show investors high-quality stocks with track records of not only paying dividends but consistently increasing the payouts.

While there are stocks from each sector, some of the main sectors that Dividend Aristocrats come from are financials and real estate. Unsurprisingly, these top investment sectors produce the most companies that can consistently grow their profits and dividends.

This year, after the coronavirus pandemic hit, several stocks had to trim their dividends, which made them ineligible to continue on the list. A lot of these TSX stocks were energy companies such as Suncor and Inter Pipeline.

Before the coronavirus pandemic, the Dividend Aristocrats list was full of great stocks. However, now having just gone through a pandemic, you know that if a stock is still on the list and is continuing to pay its dividend, it’s likely very resilient.

TSX dividend stock to buy

When looking at the list, one TSX stock that stands out, especially because of its valuation these days, is Enbridge (TSX:ENB)(NYSE:ENB).

The company has seen a slight impact due to the large reduction in demand for oil since the start of the pandemic. However, looking at the share price, the impact on its business is not as prominent as the share price would lead you to believe.

The stock is still down roughly 25% from its pre-pandemic high, despite its robust operations. Management has worked hard to find cost-saving initiatives, and the company’s strong diversification has played a significant role.

All in all, Enbridge has remained resilient, and management has even reiterated its 2020 guidance for distributable cash flow. This guidance shows the worst Enbridge’s payout ratio could get to this year would be 72%, so its massive 7.75% dividend looks to be safe.

That’s unsurprising given that Enbridge is one of the top Canadian Dividend Aristocrats and a core income stock for any portfolio.

Bottom line

The Canadian Dividend Aristocrats list is the ideal place to find top TSX stocks. So, next time you’re looking to add a stock to your portfolio, I’d check there first.

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 Daniel Da Costa owns shares of ENBRIDGE INC. The Motley Fool owns shares of and recommends Enbridge.

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