The year is almost over, but the broader macroeconomic picture is still hazy, especially for income investors. If you’re buying stocks this month for passive income in 2024 and beyond, extend your criteria or parametres beyond dividend history or track record. The following are the Canadian stocks with sustainable yields.
Recession resistant
Alimentation Couche-Tard (TSX: ATD) in the consumer staples sector is a very safe choice. At $77.59 per share, the 0.77% dividend offer is relatively low. However, the 13.31% payout ratio lends confidence to invest in the multinational operator of convenience stores. The $74.9 billion company has three popular brands under one umbrella.
This giant convenience retailer has established a global footprint. Its store count in 25 countries has grown to over 14,400 and expansion is non-stop. Couche-Tard’s chief executive officer (CEO), Brian Hannasch, told analysts recently the business is recession-resistant but not actually recession-proof.
Some belt-tightening by customers could impact the business. Nevertheless, Couche-Tard is rock steady, given its 31.51% year-to-date gain.
Financial
The financial sector, composed of banks and insurance companies, has the most significant percentage weight on the TSX. Its constituents account for 35.44% of the index. Canada’s banking sector is a bedrock of stability. National Bank of Canada (TSX: NA) is the sixth-largest bank and a logical choice in a higher-for-longer interest rate scenario.
Besides the 4.51% yield and 42.43% payout ratio, the $31.7 billion bank has been generous with dividend hikes in the last five years. Laurent Ferreira, NA’s president and CEO, said the bank commits to maintaining a defensive posture and prudent approach to capital, credit, and cost management in fiscal 2024
Manulife Financial (TSX: MFC) is the next-best choice in the financial sector. The $48.75 billion iconic insurer and financial services company has a dividend-growth streak of eight years. It currently pays a juicy 5.44% dividend, with a corresponding payout ratio of 40.33%. At $26.82 per share, the iconic insurer is up 17.55% year to date.
Energy
A Canadian’s stock portfolio won’t be complete without an energy stock. The sector’s percentage weight on the TSX is 17.27%. A no-brainer choice is Canadian Natural Resources (TSX: CNQ). This top-tier energy constituent trades at $85.09 per share (+18.66 year to date) and pays a hefty 4.7% dividend.
The $92.5 billion oil & gas producer is a Dividend Aristocrat owing to 22 consecutive annual dividend increases. Also, the quarterly dividend should be sustainable considering the 54.87% payout ratio. Since July 2021, the company has alloted 50% of its free cash flow to share repurchases.
Industrial
Industrial is the third-largest sector on the TSX (10.58%), and Finning International (TSX: FTT), the world’s largest Caterpillar dealer, is the standout. The $5 billion Canadian firm raised dividends for 20 consecutive years. At $34.63 per share (+5.67% year to date), the yield is a decent 2.89%, while the payout ratio is a low 25.38%.
Its president and CEO, Kevin Parkers, said the team’s game plan is to drive product support, full-cycle resilience, and sustainable growth. He added that the business enjoys continued momentum with robust customer activity in Finning’s diverse end markets.
Choose wisely
The Bank of Canada held interest rates steady again in December 2023, but the policymakers will stick to a tight monetary policy in the new year. Hence, dividend earners must ensure their chosen stocks can sustain their yields.
