Investing in dividend stocks can provide meaningfully less-volatile returns over a longer time frame. And since companies that pay dividends typically have much stronger balance sheets than those that don’t (which is particularly true for companies that have paid dividends consistently for a long period of time), I like to start my research of potential stock picks with dividends as a key factor to keep in consideration up front.
For those looking to create meaningful passive income over the long term, current yield matters. However, the future dividend-growth rate of a particular company matters as well.
In my view, these two top Canadian dividend stocks are certainly worth a look on the basis of their long-term total-return potential in this market.
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Bank of Nova Scotia
Bank of Nova Scotia (TSX: BNS) is one of the five largest Canadian banks, but it also operates around the world. With one of the best balance sheets of its peers, Scotiabank remains a top pick of mine for investors seeking both considerable yield (currently at 6.1%) and healthy long-term capital appreciation, as the chart below shows.
Bank of Nova Scotia has formulated a strategy to withdraw from less favourable markets (such as Colombia), while concentrating on more attractive ones like Mexico. In addition, it aims to mark its presence in the United States, ultimately aspiring to establish a North American banking powerhouse extending from Canada to Mexico.
Acting on this strategy, the company has recently revealed an agreement to acquire close to 15% of KeyCorp. With the company ramping up its U.S. exposure and becoming one of the more global Canadian banks on a relative basis, this is a stock I think is worth owning over the long term for more than its dividend yield.
Enbridge
Enbridge (TSX: ENB) has long been favoured as a top dividend stock in the Canadian market. With a yield that’s approached double digits in recent years, that’s enough of a catalyst for many income investors to consider this name.
However, I view Enbridge as a great defensive dividend option due to its core business model as one of the most important energy infrastructure companies in North America. The company provides investors with a dependable income stream supporting its strong dividend yield and consistent dividend growth. Its extensive pipeline network and participation in energy infrastructure have contributed to its long-standing success, supported by stable cash flows and a resilient business model within the energy sector.
The stock has been a favourite among Canadian stockholders due to its track record of growth and steady dividend payout. Moreover, despite Enbridge’s strategic acquisitions, such as various U.S. gas utilities, integrating these assets and managing associated costs can present potential risks.
The company’s growth strategy is heavily reliant on these acquisitions, and any delays or challenges in achieving the anticipated synergies may affect Enbridge’s financial performance. However, the company’s historical shareholder-friendly approach toward dividend payouts makes it a must-add stock to your investment portfolio.
Fortis
Fortis (TSX: FTS) conducts a heavily regulated utility business catering to 3.5 million customers. About 99% of its assets are regulated, making its financials less vulnerable to market volatility and ensuring consistent and predictable financial performance.
Over the last decade, the company has delivered an average total shareholder return of 9%. In addition, it has consistently increased its dividends for the past 50 years, and its current forward yield stands at 3.9%.
Fortis intends to allocate approximately $25 billion from 2024 to 2028 to expand its asset base with an annualized growth rate of 6.3%. Additionally, the company aims to finance approximately 55% of these investments from its operations and 11% from its debt, ensuring that these investments do not significantly increase its debt levels.
Over time, I think this utility giant should be able to benefit from longer-term secular trends in higher energy usage, making Fortis’S recent rally look like a blip on the long-term chart. And with 50 consecutive years of dividend hikes in the rearview mirror, this Dividend King is certainly worth putting in the portfolio on this basis alone.
