The Best Canadian Dividend Stocks for Income Investors

Canadian dividend stocks such as Enbridge are yielding as high as 6.7% and offer predictability and consistent dividend growth.

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Income investors have a clear investing goal: income generation. That’s obvious, right? Well, maybe so, but what might not be as obvious is how to go about achieving this goal. In this article, I will discuss three of the best Canadian dividend stocks to buy to maximize your income potential. These are stocks that have a strong history of dividend growth as well as predictability and safety.

BCE: This stock is yielding 6%

BCE (TSX:BCE) is Canada’s largest telecom services company with a market capitalization of $60 billion and a long history of stability. In fact, in the last five years, BCE’s dividend has grown at a compound annual growth rate (CAGR) of 5.1%. This CAGR has held up in the past 20 years as well.

The company reported its third-quarter (Q3) 2023 results this week. Earnings declined 4.5% and cash flow from operating activities was hit hard. The decline in earnings was driven by higher interest expense, higher depreciation, and lower adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). The decline in operating cash flow was driven by the same variables as well as working capital timing, tax installments, and capital expenditures.

While this result is not ideal, remember that BCE remains financially healthy and stable, with $3.7 billion in available liquidity and manageable debt levels. I would also highlight that this result has not impacted BCE’s 2023 financial targets.

Most importantly, one quarter does not change a long-term outlook. As for BCE’s dividend, this Canadian stock has increased its dividend by 5% of higher for 15 consecutive years. In my opinion, BCE stock is pretty undervalued today and offers great value as a source of income for investors.

Enbridge: This stock has a very generous dividend yield of 6.7%

As a leading North American energy infrastructure company, Enbridge (TSX:ENB) has certainly hit some rough patches. Without a doubt, environmental issues, inflation, and the political environment have all put pressure on Enbridge stock. However, despite all of this, the fact remains that this company has been a dividend superstar.

In the last five years, Enbridge has steadily grown its revenue by 15%, or at a CAGR of 3%. Also, Enbridge increased its dividend annually for the last 28 years. During this time period, its annual dividend has grown at a CAGR of 7.25%, to the current $3.55 per share.

Enbridge’s cash flows remained pretty consistent over the last eight years. In fact, they increased at a CAGR of over 13%. Today, Enbridge is churning out over $11 billion in operating cash flow — money that is enabling the company to reward its shareholders with continued annual dividend increases. It is my belief that Enbridge stock is undervalued today.

Fortis: The epitome of safety and reliability yielding 3.7%

Lastly, we have Fortis (TSX:FTS). Fortis is a $29 billion utility giant with a diverse geographic footprint and asset mix. It’s also the Canadian dividend stock with the most impressive history of dividend growth. In fact, Fortis has a 49-year history of dividend increases. That’s a really long time!

More recently, the latest dividend increase was a 5.6% increase this year. Looking ahead, the company expects dividend growth in the range of +4-6% until 2027. And I think we can certainly place our confidence in this expectation for two main reasons. Firstly, the almost 50-year history kind of speaks for itself. And secondly, Fortis’s business is highly regulated AND highly defensive. The government sets the rates, and electricity is not something we can or want to live without. So, Fortis’s revenue and earnings are pretty sticky and resilient.

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 Karen Thomas has a position in BCE and Enbridge. The Motley Fool recommends Enbridge and Fortis. The Motley Fool has a disclosure policy.

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