Canadian dividend stocks are some of the best income-producing assets for Canadians to own. They generally have higher yields and better overall returns than interest-bearing bonds, and they are taxed at lower rates than foreign dividend stocks. On top of that, Canadian dividend stocks are usually quite stable, delivering good returns for decades, sometimes centuries. In this article, I explore three Canadian dividend stocks that could be worth holding for 20 years or more.
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Suncor
Suncor Energy Inc (TSX:SU) is a Canadian integrated energy company. The word “integrated” in this context means that the company is involved in most energy sub-sectors: exploration and production (E&P), refining, natural gas, and gas stations. The company’s involvement in all of these energy sub-sectors means that it can profit in many different market conditions. A pure-play E&P will struggle to be profitable with low oil prices; Suncor’s refining and gas station operations mean that it can continue making money even when oil prices decline.
Suncor’s business advantages are reflected in its recent performance. The company’s most recent earnings release beat estimates, with $1.31 in adjusted earnings and $1.36 in reported earnings. Over the last 10 years, Suncor has compounded its revenue at 3.3% and its earnings at 23% annualized. Finally, the company is quite profitable, having earned a 59% gross margin, a 12% net margin, and a 16% free cash flow (FCF) margin in the trailing 12-month (TTM) period.
Brookfield
Brookfield Corp (TSX:BN) is a diversified Canadian financial services conglomerate. It is active in asset management, insurance, real estate, infrastructure, and renewable energy. The company has delivered high growth in revenue and distributable earnings (DE) in recent years. Its asset management business has over $130 billion in committed capital that it hasn’t started investing yet. As the capital gets invested and starts earning fees, the company’s fee-related earnings (FRE) will increase. Brookfield also enjoys high growth in its insurance business, which is relatively young and has a lot of room to run.
TD Bank
The Toronto-Dominion Bank (TSX:TD) is Canada’s second biggest bank. It is among the cheapest North American money centre banks, trading at just 12 times earnings. Despite the relative cheapness, the bank is growing faster than most of its peers, with adjusted revenue up 9.1% in the most recent quarter.
The reason TD Bank got cheap was because it had a fine and asset cap imposed on it by the U.S. Department of Justice (DoJ). The fine and cap resulted in a situation where TD was not able to grow its U.S. retail business. However, the cap did not apply to the Canadian business or the U.S. investment bank. The money TD has been withdrawing from its U.S. retail business has been used to fund a buyback. The buyback has contributed to TD’s market-beating return this year.
Canadian dividend stocks: Foolish bottom line
The bottom line on Canadian dividend stocks is that they are excellent income-producing assets. Modestly valued, high-yielding and very stable, they can add some much-needed income to your portfolio.
