Investors seeking the smartest dividend stocks could consider shares of companies with a focus on paying and increasing their distributions over time. Choosing Canadian stocks that prioritize growing their distributions can help you earn passive income, which has the potential to grow along with your investment. So, if you plan to invest $1,000 in dividend stocks, let’s look at a few fundamentally strong companies that focus on consistently rewarding their shareholders’ returns with higher payouts.
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Dividend stock #1
Investors can consider Canadian Natural Resources (TSX: CNQ) stock for its ability to grow its dividend at a solid pace. The company’s strong financials and ability to generate significant and sustainable free cash flows enable it to consistently increase its dividend. Notably, this oil and gas company has uninterruptedly increased its dividend for 25 years. What stands out is that this energy company’s dividend has sported a compound annual growth rate (CAGR) of 21% over that time.
The company is focusing on allocating 60% of its free cash to enhance shareholder value through dividends and share buybacks. Moreover, it plans to use the rest to strengthen its balance sheet and reduce debt. Canadian Natural Resources will increase the payout ratio once it lowers its debt below its target level.
Looking ahead, Canadian Natural Resources will likely benefit from its diversified assets, high-value reserves, lower maintenance costs, and low-capital-intensive projects. Further, its focus on acquisitions and improving efficiency bodes well for future cash flows and dividend payments.
Dividend stock #2
Brookfield Renewable Partners (TSX: BEP.UN) is a compelling dividend stock for growing passive income. This renewable energy company has raised its dividend at a CAGR of 6% since 2001 and plans to grow its distribution by 5–9% annually over the long term.
Brookfield will likely benefit from its highly diversified renewable energy assets and increasing corporate and industrial demand. Further, power purchase agreements and long-term contracts are likely to boost its funds from operations (FFO) and support higher payouts.
Brookfield will benefit from higher demand for electricity, driven by data centre investment and the electrification of industrial capacity. This will drive the company’s financials. Moreover, Brookfield Renewable’s extensive operating fleet and large development pipeline position it well to capitalize on the growing demand.
Further, the company’s focus on acquiring leading renewable development platforms to expand into high-value geographies bodes well for growth. In addition, its focus on accelerating the pace of project commissioning and ability to command higher pricing will likely support its growth.
Dividend stock #3
Telus (TSX: T) is another attractive stock offering reliable dividends and a high yield. The communication giant benefits from its leading network infrastructure, growing customer base, and focus on improving efficiency, which drives its earnings and higher dividend payouts.
Telus has paid about $21 billion in dividends since 2004. Moreover, it has raised its dividend multiple times over the past decade under its multi-year dividend growth program.
Looking ahead, Telus’ investments in expanding its PureFibre Network and 5G infrastructure, low churn rate, higher average revenue per user (ARPU), and cost reductions will cushion its earnings and support higher dividend payments. Furthermore, Telus’ focus on artificial intelligence (AI), cybersecurity, and digital transformation will likely accelerate its growth. While Telus is poised to grow its dividend, it offers an attractive yield of about 7%.
