2023 has certainly been another volatile year, especially for many Canadian dividend stocks. The impact of higher interest rates has been playing havoc with debt-heavy stocks. Already, we have seen Algonquin Power, Corus Entertainment, and True North REIT drastically cut their dividends.
Given their 9%-plus dividend yields, NorthWest Healthcare REIT and American Hotel Income Properties REIT look to be at risk of additional dividend cuts.
Choose dividend longevity over a large dividend yield
The point here is that high-yielding stocks are ones you most likely want to avoid in bear markets. Stocks with high dividend yields tend to have elevated financial or business risks.
I have very rarely seen stocks that trade with a 9–10% dividend yield which didn’t have to lower their dividend rate later. If you wish to avoid this scenario, look for dividend sustainability over dividend yield.
Stocks with sustainable dividend models tend to perform better in a bear market and provide higher long-term returns. If you are looking for some safe TSX dividend stocks, here are three to look at today.
FTS: One of the safest dividend growth stocks in Canada
Fortis (TSX:FTS) has grown its dividend for 49 consecutive years. This is a huge accomplishment for any Canadian stock. Given this legacy, Fortis is particularly prudent about ensuring the stability and consistency of its dividend. It naturally operates a very defensive business.
Canada’s largest investor-owned distribution utility has 10 utility operations across North America. Its primary focus is on electricity and natural gas transmission/distribution. These are very consistent businesses given their essential economic nature.
Right now, this dividend stock yields 4%. It has a modest dividend payout ratio of around 65%. Fortis targets 4–6% dividend growth going forward. For a very low risk business with years of dividend growth, this is a very safe bet.
GRT.UN: A safe and solid REIT
Granite REIT (TSX:GRT.UN) is another very defensive stock. It is Canada’s largest industrial real estate investment trust. The REIT operates high-quality, large-scale logistics and manufacturing properties across Canada, the U.S., and Europe.
Granite’s properties have an average lease term of 6.7 years and 99.6% occupancy. This means that its monthly earnings from rents are very predictable. It helps that industrial property demand is extremely high and helping to push rental rates up quickly.
This dividend stock has a very conservative amount of debt (32% net leverage ratio). GRT.UN’s 3.85% dividend yield is covered by a 75% payout ratio. It has increased its distribution for 12 consecutive years, and is likely to keep doing so.
CNR: A great dividend stock for any cycle
Another persistently defensive stock is Canadian National Railway (TSX:CNR). While it only pays a 2% dividend yield right now, the company has an excellent 20-year history of growing its annual dividend by 12%-plus.
While CN is affected by economic factors, its business is generally very defensive given its crucial transportation network, competitive moat, and strong pricing power. CN has a smart new management team that is looking to unlock long-term profitability and efficiency. This dividend stock is down in 2023, and it looks attractive.
Its dividend payout ratio is only 42%, so it has ample flexibility to deploy its excess capital/cash flows into growth opportunities. This is a very solid stock to buy in bear markets and hold for years and decades afterwards.