Resilience and Returns: The Dual Appeal of Canadian Dividend Stocks

TD is an example of a stock that has demonstrated its resilience and survived and thrived despite numerous crises.

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Resilience – it’s what separates success and failures. When it comes to dividend stocks, resilience means a lot of things. Most of all, it means consistent, growing dividends. There are a few Canadian dividend stocks that show this over time, and these are the stocks that I’ll explore in this article.

Long-term survival requires resilience

Let’s look at the Canadian banks as an example of this. Toronto-Dominion Bank (TSX:TD), one of Canada’s top two banks, is demonstrating tons of resilience and delivering ample returns over the long run.

In our search for the best Canadian dividend stocks, we need look no further than TD stock, whose stock price graph can be found below.

Here we see that over the last 35 years, the stock has provided its shareholders with a more than 1,700% return. But there’s more. During this time period, TD stock has also paid out consistent and growing dividends. In fact, since 1995, the bank’s annual dividend has grown from $0.22 per share to the current $3.84. That’s 1,645.5% higher, for a compound annual growth rate (CAGR) of 10.7%.

But how could TD have thrived during these last 35 years, through numerous crises and macroeconomic headwinds? Well, the answer is actually quite simple – resilience. This resilience is evidenced in the simple fact that the bank has continued to generate healthy returns throughout these years. Through the credit crisis of 2008, the recession in the early 1990s, and so many other events, TD bank has survived and ultimately thrived.

Resilience requires a competitive advantage

One thing that does not get talked about enough is the idea of a competitive advantage. A competitive advantage really drives resilience and ensures that a company is protected from competitors that are vying for a piece of the pie.

So, what is a competitive advantage? Well, simply put, a competitive advantage is something that puts a company in a superior position relative to its peers. This advantage can take the form of cost leadership, differentiation, operational excellence, and branding, to name just a few.

Canadian Natural Resources Ltd. (TSX:CNQ) is a good example of a company that has clear competitive advantages. For example, it’s one of the lowest-cost oil and gas producers. Also, its assets are top tier, which means that they are long-life assets with low decline rates. This also means that they have longevity, resiliency, and require relatively little in the way of capital investment to keep them producing.        

Ultimately, this has resulted in a long history of solid returns for CNQ stock. For example, the stock price has returned more than 2,100% since 2001. Also, Canadian Natural’s dividend has increased 7,100% since 2001, making it one of the best Canadian dividend stocks.

A healthy balance sheet facilitates a growing dividend

Lastly, I cannot stress enough the importance of maintaining a healthy balance sheet. This is paramount to success and long-term survival. A healthy balance sheet is a simple concept that can also be applied to our own personal finances. The more debt you have, the more you risk something going awry.

While corporations really do need to take on a level of debt in order to grow and maintain their competitive advantage, they must also ensure that they spend wisely and carefully. There’s nothing that can get a company, even a bank, in trouble more quickly than taking on a reckless amount of debt.

Both TD stock and Canadian Natural Resources have been consistent in their drive to maintain a healthy balance sheet. TD Bank has been well-capitalized over the years, and the bank has maintained policies that are conducive to maintaining this by avoiding high risk business and maintaining a conservatism that keeps it grounded.

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 Toronto-Dominion Bank. The Motley Fool recommends Canadian Natural Resources. The Motley Fool has a disclosure policy.

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