A well-balanced portfolio should have some high-quality top dividend stocks as they offer reliable income, add stability, and have the potential to deliver decent capital gains over time. Notably, the top dividend stocks are the ones with a track record of paying (and ideally increasing) dividends for at least a decade. Further, these should be large blue-chip companies with strong earnings and resilient businesses. Finally, one should look for companies offering attractive yields and maintaining a sustainable payout ratio.
Such fundamentally strong companies are more likely to pay and increase their dividends over time. Against this background, here are my top three Canadian dividend picks you’ll want in your portfolio.
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Dividend stock #1
Canadian communication giant Telus (TSX: T) is one of my top dividend picks and for solid reasons. Notably, this telecom company has returned about $21 billion as dividends to its shareholders since 2004. Moreover, since 2011, it has increased the dividend 27 times through its multi-year dividend-growth program. In addition, Telus offers an attractive and sustainable yield of 7.3% near its current market price, making it a solid bet to generate steady income.
Telus is well-positioned to pay and increase its dividends. The telcos diverse revenue streams and low customer churn augur well for growth. Further, its focus on margin-accretive customer growth and reducing costs will support its bottom line, enabling it to pay higher dividends. Telus’s investment in network infrastructure and focus on expanding its broadband and wireless services are likely to drive its subscriber base and retention. Beyond telecom, Telus’s focus on Internet of Things (IoT) offerings will likely support growth.
Telus projects its capital expenditures to ease in the coming years, which will cushion its earnings and payouts. It is targeting annual dividend increases of 3% to 8% through 2028, making it a reliable passive income stock.
Dividend stock #2
TC Energy (TSX: TRP) is another reliable pick. The energy infrastructure company has consistently paid and increased its dividends for decades, offers an attractive yield, has a resilient payout ratio, and plans to grow its dividends in the coming years. These attributes make it a compelling income stock to own.
TC Energy’s extensive network of natural gas pipelines witnesses high utilization, supporting its cash flow and distributions. Moreover, its investments in power generation diversify its operations and support its cash flow. Notably, it operates a low-risk business model as roughly 97% of its earnings before interest, taxes, depreciation, and amortization (EBITDA) come from regulated assets or long-term take-or-pay contracts. These agreements shield the company from the volatility in commodity prices, helping it to generate predictable, stable earnings in all market conditions.
Thanks to its strong earnings base and growing cash flow, TC Energy has increased its dividend for 25 consecutive years. Looking ahead, TC Energy expects to continue growing its dividend at a modest pace of about 3–5% annually. Moreover, its current dividend yield of around 4.8% is well protected through its contracted and regulated asset base.
Dividend stock #3
Canada’s top banking stocks also have a stellar history of paying and increasing dividends. Moreover, they maintain sustainable payout ratios and offer attractive yields. All of these qualities make them one of my top picks for passive income.
Within the banking space, Scotiabank (TSX: BNS) appears attractive, thanks to its solid dividend distribution history and high yield.
This financial services company has been paying dividends since 1833. Moreover, Scotiabank has raised its dividend by an average 5% every year since 2014, reflecting its commitment to enhancing shareholder value. Currently, Scotiabank offers a compelling yield of about 5.6%.
Scotiabank’s diversified revenue model, growing wealth management and capital markets business, ability to expand its loan and deposit base, and focus on improving operational efficiency will drive its future earnings, supporting its payouts. Moreover, the bank’s focus on high-growth banking markets augurs well for future growth.
