Income-seeking individuals can consider investing in quality dividend stocks to create a stable stream of passive income. Here, it is crucial to identify companies that have strong fundamentals and predictable cash flows, allowing them to maintain dividend payouts across market cycles.
The best dividend stocks are companies that increase their payouts consistently over time, enhancing your effective yield significantly.
Here are the two best dividend stocks income investors can buy right now.
Restaurant Brands International stock
One of the largest companies in Canada, Restaurant Brands International (TSX:QSR) is valued at a market cap of $43 billion. Down 8% from all-time highs, QSR stock currently offers shareholders a dividend yield of 3.2%, given its annual payout of $3.04 per share.
Generally, the best restaurant stocks are solid picks for dividend investors as they enjoy significant brand exposure and a successful franchise model. A large retail footprint and robust profit margins allow QSR and its peers to deliver consistent sales over the long term.
Restaurant Brand owns and operates multiple franchise brands such as Tim Horton’s, Firehouse Subs, Burger King, and Popeyes. With a portfolio of 30,000 restaurants, QSR has enough room to grow, given it is yet to gain traction in emerging markets such as India and China.
QSR has raised dividends for eight consecutive years. These payouts have risen by more than 20% annually since 2015, which is remarkable for shareholders.
In the past decade, RBI has increased revenue by 12% and free cash flow by 24% annually. It is forecast to grow sales by 11% to $9.63 billion in 2023, while earnings growth is estimated at 5% this year.
Priced at 21.7 times forward earnings, QSR stock trades at a discount of 10% to consensus price target estimates.
Canadian Natural Resources stock
Another TSX giant, Canadian Natural Resources (TSX:CNQ) offers you a dividend yield of 4.4%. While CNQ is part of the cyclical energy sector, it has raised dividends by 20% annually for more than two decades, showcasing the resiliency of its cash flows and earnings. Despite a challenging environment, CNQ increased dividends by 18% in 2023.
In the second quarter (Q2) of 2023, CNQ reported adjusted earnings of $2.9 billion and funds flow of $4.7 billion. After accounting for capital expenditures, CNQ’s funds flow stands at $2.7 billion, indicating a payout ratio of less than 40%. This provides Canadian Natural Resources with the flexibility to reinvest in growth projects, reduce balance sheet debt, and target accretive acquisitions.
The energy heavyweight owns and operates a diversified portfolio of long-life low-decline assets, allowing it to return more than $6 billion to shareholders via dividends and share buybacks in the first 10 months of 2023.
With strong production volumes and expected free cash flow in Q4, CNQ might soon approach a net debt level of $10 billion, after which it targets to return 100% of free cash flow to shareholders.
Priced at 11.8 times forward earnings, CNQ stock is quite cheap given its growth forecasts, healthy balance sheet, and tasty dividend yield. Analysts expect CNQ stock to gain another 10% in the next 12 months.
