3 of the Safest Dividend Stocks in Canada

While dividends are not a guarantee, there are a few safe stocks on the TSX that have a sustainable payout ratio.

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Investing in quality or blue-chip dividend stocks is a proven strategy to generate outsized gains over time. Dividend stocks provide investors the opportunity to create a passive-income stream and benefit from long-term capital gains. So, it makes sense to allocate a portion of your portfolio toward dividend stocks.

Here are three of the safest dividend stocks that Canadian investors can buy right now.

Canadian National Railway stock

A TSX giant, Canadian National Railway (TSX:CNR) is trading at a market cap of $106 billion. In the last 20 years, CNR stock has returned close to 2,000% after adjusting for dividends. Despite game-changing returns, Canadian National Railway offers investors a dividend yield of 2%.

With a transportation network spanning 22,000 miles, CNR transports a wide range of products from coast to coast in Canada. While the company is part of a cyclical industry, its massive network, wide economic moat, and pricing power make it a top bet right now.

Canadian National Railway has increased dividends by 12% annually in the last decade and ended 2022 with a payout ratio of around 40%. So, it can easily reinvest cash flows to increase dividends, expand its network and strengthen its balance sheet.

Priced at 20.4 times forward earnings, CNR stock is forecast to increase adjusted earnings by 13% annually in the next five years.

Canadian Pacific Railway stock

Another railroad stock, Canadian Pacific Railway (TSX:CP) operates over 12,500 miles of track in North America. In 2022, it hauled various shipments, including grain, energy products, chemicals, intermodal containers, fertilizer, plastics, and automotive products.

Similar to CNR, Canadian Pacific stock has also returned 1,920% to shareholders since April 2003. It currently offers you a dividend of 0.75% which is not eye-catching. But dividend payouts for CP stock have increased by 11% in the last 18 years.

Since 2013, CP has increased volumes by 6% annually and expects growing e-commerce sales to be a key driver of courier growth in 2023 and beyond.

Equipped with a strong balance sheet and a sustainable payout ratio, CP is among the safest dividend-paying stocks on the TSX.

Emera stock

The final dividend stock on my list is Emera (TSX:EMA), a Canada-based utility company. In the last 10 years, Emera has returned 9% annually to shareholders in dividend-adjusted gains. Currently, its forward yield is quite tasty at 4.8%, and these payouts have risen by 5.8% each year on average since 2000.

Utility companies generate a majority of cash flows from regulated investments, and for Emera, this figure stands at 95%. It owns six electric and natural gas utilities in Canada, the U.S., and the Caribbean, servicing 2.5 million customers.

The company aims to grow its rate base between 7% and 8% annually through 2025, allowing it to increase cash flows and dividends, making Emera attractive to income investors. Emera continues to invest in clean energy solutions, further diversifying its asset base.

It’s installed renewable capacity has grown 21% year over year to 1,654 megawatts, and the company has allocated over $5 billion to build a robust portfolio of clean energy assets.

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 Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Canadian National Railway, Canadian Pacific Railway, and Emera. The Motley Fool has a disclosure policy.

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