Canada is full of dividend stocks. Not all of these dividend stocks are very good investments. However, you have a wide selection.
When investing in dividend stocks, the most important point is to prioritize dividend safety over dividend size. A large dividend yield is hardly an endorsement for owning a stock.
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Never pick a stock just for its dividend yield
In fact, stocks with overtly large dividend yields (like over 7%) often are priced that way because their businesses have an existential threat (like a bad balance sheet, declining sales/earnings, a weakening competitive moat, etc.).
You want to find stocks with modest dividend yields that are steadily growing earnings/cash flows per share. As their earnings power increases, these companies are also likely to increase their dividend at regular intervals. Not only are these businesses safer and less volatile, but their income stream is also safer.
If you have $3,000 cash and are looking for some safe but growing dividend stocks, here are three to contemplate buying now.
This tech stock is a cash cow
Enghouse Systems (TSX:ENGH) is an interesting bet for income, value, and maybe even growth. It supplies communication and asset management software to large enterprises and entities.
It is not the most exciting technology play. However, the company is a cash cow with $258 million of net cash on its balance sheet. It generates more than $100 million a year in cash from its current business.
Enghouse has traditionally grown by acquisition. While its deal pipeline appears to have slowed, it is primed to make a large deal. In the meantime, its stock is relatively cheap at 14 times free cash flow. Management has started to buy back stock.
This stock has increased its dividend by a 19% compounded annual growth rate (CAGR) over the past five years. It yields 3.3% today.
If you want a safe and growing dividend with the potential for some upside if it gets its merger and acquisition engine revving again, Enghouse looks interesting today.
A top dividend-growth stock in Canada
Canadian Natural Resources (TSX:CNQ) is another cash cow that should provide years of attractive dividends ahead. Certainly, this stock might operate in the “sunset” energy industry.
However, with a rising global population and ever-increasing demand for energy/power, it likely won’t “sunset” for decades. In the meantime, Canadian Natural has built out an energy production machine that generates a tonne of excess cash.
Despite being what some consider a “cyclical” energy stock, Canadian Natural has grown its annual dividend by a 21% CAGR over 25 consecutive years! It is an incredible record. I don’t see its dividend growth stopping any time soon. It yields 4.6% today.
A heavily discounted real estate stock
Recently, Minto Apartment Real Estate Investment Trust (TSX:MI.UN) stock looks like a falling knife. It is down almost 15% this year. However, that doesn’t reflect the underlying fundamentals of its business.
Today, Minto has a new management team focused on delivering per-unit growth for unitholders. Over the year, they sold off non-core assets and reduced their variable rate debt exposure to almost zero.
Today, their balance sheet is in pristine shape. All the while, its well-located apartments have continued to demand solid low-teens rental rate growth.
This dividend stock trades at a 40% discount to the private market value of the properties it holds. Management has started to buy back units. While you wait for this to generate value, you can collect a nice 3.6% dividend yield. It has raised its dividend for six consecutive years.
