Resilience and Returns: The Dual Appeal of Canadian Dividend Stocks

Park your money in these quality Canadian dividend stocks on dips if you seek resilience and long-term returns.

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Canadian dividend stocks have much appeal to Canadian investors, other than for the Canadian dividend tax credit, which allows Canadians to keep more income in their pockets than their job income due to Canadian dividends having a lower tax rate.

If you know which dividend stocks to pick, you can get resilience and returns. History shows, in the long run, about two-thirds of total returns come from dividends. So, you should take advantage of and grab your fair share of dividends!

Here are a couple of dividend stocks that are resilient — they are what I would call “portfolio stabilizers.” It’s not that they won’t fall. But when they do, they often rebound sooner than their peers.

After all, investors fly in flocks to quality stocks in risk-off mode. These are perfect ideas for conservative investors (or any long-term investors for that matter), especially on pullbacks.

RBC stock

Royal Bank of Canada (TSX:RY) enjoys a leading position in Canada, including having a “core deposit franchise that serves as a stable source of funding,” as highlighted in its 2023 annual report. Obviously, the bank is well run and has competitive advantages. Its premium return on equity is proof. For example, according to Morningstar, RBC’s five-year return on equity is about 16.1% versus the average of 13.6% for the remaining Big Five Canadian bank stocks.

After being in a downward trend for most of the year, the blue chip stock experienced a Santa Claus rally and broke out to more normalized levels. In less than two months, from the 52-week low, RBC stock climbed 23% – a classic example of buying the dip or flight to quality.

The bank is not out of the woods yet. Non-interest expense jumped 17% in fiscal 2023. As well, Morningstar noted that “…14% of RBC’s Canadian mortgages will renew in 2024, with 25% coming in 2025…” These property owners would be hit with higher interest expenses if interest rates were to remain high. Consequently, provisions for credit losses can continue to weigh on earnings growth over the next couple of years.

At $133.38 per share at writing, the stock is fairly valued and offers a safe dividend that’s yielding 4.1%. Chances are investors would be able to buy RBC stock on another dip. That would be a good opportunity to lock in a better dividend yield.

The bank tends to increase its dividend over time. For your reference, its 10-year dividend growth rate is about 7.8%.

Fortis stock

In a higher interest rate environment, Fortis (TSX:FTS) experienced a pullback after peaking earlier in the year. It’s down about 11% from the peak. This is already considered a smooth-sailing stock that has similar properties as RBC stock in that investors will bid up the quality shares when it’s low.

The regulated utility enjoys predictable returns from its assets and investments. Its assets predominantly provide essential services for transmission and distribution of electricity and gas. Furthermore, it’s geographically diversified across North America.

At the recent price of $54.51 per share, the fairly valued utility stock offers a dividend yield of 4.3%. I’ll have you know that this year is the fiftieth consecutive year that Fortis has increased its common stock dividend, which makes it a top dividend growth stock. For your reference, its 10-year dividend growth rate is about 6.1%.

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 Kay Ng has positions in Royal Bank Of Canada. The Motley Fool recommends Fortis. The Motley Fool has a disclosure policy.

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