2020 is quickly coming to a close, and it’s time to start thinking about the best Canadian dividend stocks to own going into 2021. Clearly 2020 has been a wild year with ups and downs and everything in between. While we all may hope for a few less “surprises,” frankly, nobody, not even the experts can predict what will happen next year.
The best thing Canadian investors can do is pick the best businesses, in the best sectors, with the best balance sheets, and safe payout ratios. If I was looking to build a solid dividend stock portfolio for 2021, here are three stocks I would be sure to have in there.
The best Canadian infrastructure stock
Canadian-listed Brookfield Infrastructure Partners (TSX:BIP.UN)(NYSE:BIP) is one of the best investors in essential infrastructure assets in the world. It has a diverse portfolio of pipelines, LNG facilities, electric transmission lines, toll roads, railroads, ports, towers, and data centres. These assets are integral to the global economy and therefore are generally highly contracted/regulated. Its cash flows are some of the most predictable in the industry.
Unlike most utilities, BIP is actually growing quite rapidly. If it made no acquisitions next year, management still believes it could accrete 6-9% annual organic growth. Yet, with $3.6 billion of dry powder ready to deploy into acquisitions, that growth rate could easily jump by an additional 2-5%. Interest rates are low, and certain assets are trading at pandemic-level valuations, so acquisitions are a matter of when, not how.
Currently, this great Canadian stock pays a well-covered dividend of about 4%. If you want stability and growth, then this is one stock you want to own into 2021.
A great pandemic recovery stock
Enbridge (TSX:ENB)(NYSE:ENB) is another stock that is setting up for a strong recovery into 2021. While it has been beaten down by negative energy sector sentiment, its business has been relatively resilient in 2020. Its oil and natural gas pipelines are essential toll roads for North America’s energy industry.
Regardless of commodity prices, its assets are still needed to get energy products to market. As such, over 98% of its portfolio is contracted or regulated. The company just got full approvals for its Line 3 project, and things are looking up for overall oil demand. This great Canadian stock is paying a great 7.8% distribution, but I don’t think it will stay that high forever.
The best Canadian real estate stock you can own
Granite REIT (TSX:GRT.UN) is a perfect combination of safety, growth, and e-commerce exposure. Granite is one of Canada’s largest industrial REITs. It manages over 45 million square feet of logistics, distribution, and special purpose industrial space. These are not just little thrown-together warehouses. They are state-of-the-art, institutional grade spaces (some over 1 million square feet). They are leased to leading e-commerce tenants like Amazon, Restoration Hardware, and Wayfair.
With this stock you get exposure to the global e-commerce industry, but at a fraction of the sector valuation. You also get a great dividend of about 4% that has a history of strong annual 8-10% growth. The REIT has one of the best balance sheets in the industry (debt to capital of only 27%) and has a conservative sub-80% payout ratio.
It has recently refinanced a number of debentures at sub-2% interest rates. This should provide very attractive lease spreads, as the global economy and lease rates recover. This is one of the best Canadian dividend stocks you can own, and that is why I would be buying it for solid returns in 2021.
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.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Fool contributor Robin Brown owns shares of Amazon, Brookfield Infrastructure Partners, ENBRIDGE INC, and GRANITE REAL ESTATE INVESTMENT TRUST. David Gardner owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon, Enbridge, and Wayfair. The Motley Fool recommends BROOKFIELD INFRA PARTNERS LP UNITS, Brookfield Infrastructure Partners, GRANITE REAL ESTATE INVESTMENT TRUST, and RH and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon.