When it comes to the dividend stocks that every Canadian investor should at least own in part, there are some true quality names that should come to mind. Of course, the upfront yield, at least in my humble opinion, is probably the least important factor when considering which dividend stocks on a screener to pick up.
What comes out on top? I’d argue that value (the price you’ll pay for admission), the dividend growth history, the fundamentals, the capabilities of the managers, and the growth story (you can’t really have dividend growth without growing earnings) are some of the traits to look for. In this piece, we’ll have a look at a pair of names that I think score high marks for each one of the traits that make dividend plays really stand out.
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Nutrien
Nutrien (TSX: NTR) is an agricultural commodity producer that just fell into a bear market, now off a fraction over 20%. Indeed, the conflict in the Middle East has made for a rather turbulent climate. And while shares initially surged, the fertilizer play has since been on a steady retreat, with much of the earlier Iran war appreciation now completely wiped out. At this pace, it might not take too long before the year’s gains are gone (up 4% year to date).
With higher energy prices paving the way for heftier shipping costs, Nutrien might actually be in a tricky spot as headwinds come for margins. And higher prices on fertilizer might cause some to cut back, in a phenomenon called demand destruction. Indeed, it’s nice to have higher crop yields, but if the price is too high, perhaps some will choose to go without as they consider crops that don’t need as much fertilizer. Either way, I think that investors should play the long game with Nutrien. In due time, I think the conflict will settle, and things will normalize.
Nutrien is a stellar operator, and geopolitical issues, in my view, will not last forever. For investors looking to cash in on the discount and the nice dividend yield, currently above 3.2% at the time of this writing, I think that buying after a bearish descent could be the move, even if it means riding out more volatility on the way down.
Great-West Lifeco
Great-West Lifeco (TSX: GWO) stock is actually taking off in one of its fiercest bull markets in recent memory. I wouldn’t expect a steady dividend-paying insurance play to blast off 102% in two short years. But that’s exactly what we have with shares of GWO. While hot, the stock isn’t too hot to handle.
Not at the rate earnings are rising. At 17.6 times trailing price to earnings (P/E), the name has value and fundamental momentum at its back. With a robust 10% dividend hike delivered just a few months ago and more robust results likely ahead, I’d continue to nibble on the way up, especially for those who value yields above 3%. Today, the dividend yield sits at 3.15%, but given the potential for double-digit percentage growth, perhaps it’s still prime time to punch a ticket.
