Dividend Royalty: Canada’s Top Stocks for Reliable Income

Here’s why blue-chip TSX dividend stocks such as CNQ should be on top of your shopping list in 2024.

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Before investing in dividend stocks, it’s essential to analyze whether the company can generate cash flows across market cycles and maintain these payouts, even amid economic downturns. This means investors should avoid chasing high dividend yields and instead look at a company’s payout ratio, free cash flow growth, and balance sheet debt. In addition to a yield, the best dividend stocks also generate returns via capital gains.

Here are two quality dividend stocks Canadian investors can buy right now for reliable income.

Canadian Natural Resources stock

While Canadian Natural Resources (TSX:CNQ) is part of the cyclical energy sector, it has raised its dividend for 24 consecutive years, showcasing the resiliency of its cash flows. Moreover, these payouts have risen by more than 20% annually, which is exceptional.

Valued at $113 billion by market cap, Canadian Natural Resources continues to grow at an enviable pace. Its proved reserves increased by 2% to 13.9 billion BoE (barrels of oil equivalent), of which 8.8 billion BoE are proved developing reserves, increasing its proved plus probable reserves by 3% to 18.5 billion BoE. The strength of the company’s assets offers it a competitive advantage, as demonstrated by its reserve’s life.

Additionally, 75% of CNQ’s proven reserves are from long-life low-decline assets, with 50% of reserves consisting of high-value synthetic crude oil with a zero decline and a reserve late index of 44 years.

CNQ reported adjusted funds flow of $4.4 billion and adjusted earnings of $2.5 billion in the fourth quarter (Q4) of 2023. Its strong funds flow allowed CNQ to reduce balance sheet debt and raise dividends, making it attractive to income-seeking investors.

Priced at 13.8 times forward earnings, CNQ stock is cheap and trades at a compelling valuation in April 2024.

Brookfield Infrastructure Partners stock

Another blue-chip TSX dividend stock is Brookfield Infrastructure Partners (TSX:BIP.UN), which pays shareholders an annual dividend of US$1.62 per share, translating to a forward yield of 5.5%.

BIP stock went public in early 2008 and has since returned 280% to shareholders. However, after adjusting for dividends, total returns are much higher at 808%. Despite its market-beating returns, BIP stock trades 35% below all-time highs, allowing you to buy the dip.

Brookfield Infrastructure owns and operates a portfolio of cash-generating assets across sectors such as clean energy, transportation, data centres, and midstream.

Around 90% of its funds from operations, or FFO, are regulated or contracted. Due to its resilient, contracted, and inflation-linked cash flows, BIP has raised dividends for 15 consecutive years. Since 2009, these payouts have risen by 10% annually while moving ahead, BIP expects to increase dividends between 5% and 9% annually.

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Given its payout ratio is less than 70%, BIP has the flexibility to deploy funds towards capital expenditures, lower balance sheet debt and target acquisitions. In 2023, BIP closed over US$2 billion of new investments, which should drive future cash flows and support dividend hikes.

Its investing heavily to build a semiconductor manufacturing facility in the U.S., in addition to multiple development projects globally. According to BIP, its acquisitions, expansion projects, and organic growth drivers will help it grow FFO per share by 10% in the near term.

Analysts remain bullish and expect the stock to surge over 25% in the next 12 months.

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 Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Brookfield Infrastructure Partners and Canadian Natural Resources. The Motley Fool has a disclosure policy.

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