Canada has plenty of dividend stocks. However, there are some elite passive-income stocks that stand above the rest. They have exceptional assets, great management, hardy business models, and years (and even decades) of dividend growth. Here are three Canadian dividend stocks that are absolutely best in class.
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Fortis: Hard to beat over 50 years of dividend growth
How can you argue with 52 consecutive years of dividend growth? That is exactly what Fortis (TSX: FTS) has done. The dividend track record speaks to the quality and vital need for its assets. This company has compounded annual shareholder returns at a 10.7% rate over the past 20 years.
Fortis is the backbone of the energy grid. 95% of its assets are distribution and transmission infrastructure. Its assets are 100% regulated. The regulator sets the prices, but Fortis earns a set return on the investments it makes. It effectively has a monopoly in each jurisdiction it operates, which just further protects the longevity of its income streams.
Fortis isn’t done with its dividend-growth trajectory. It only yields 3.4%. Nevertheless, it continues to target 7% annual rate base growth that should sustain 5-7% annual dividend growth.
Fortis is not going to provide outstanding life-changing returns. However, it is going to deliver a very safe dividend and steady single-digit capital returns over time. For a low-risk, sleep-well-at-night stock, you can’t find better than Fortis.
Royal Bank of Canada: Canada’s largest stock
Royal Bank of Canada (TSX: RY) is the epitome of best-in-class. With a market cap of $390 billion, it is the largest Canadian stock and the largest bank.
It is a leader in retail, business, and commercial banking, as well as wealth management and capital markets. The bank has smartly avoided the mistakes of other peers. Consequently, it has been able to opportunistically take market share when they stumble.
Royal just delivered a great quarter with 9% growth and strong 18% returns on equity. It has a leading equity ratio and a very strong balance sheet.
Over the past 20 years, it has grown its dividend at an 8.8% compounded annual growth rate. It had a few pauses along the way, but the long-term trajectory has always been up.
The biggest problem is that Royal Bank’s dividend yield has compressed to 2.45%. The stock is no doubt quite pricey today. I would wait for a significant pullback to make an investment.
Canadian Natural Resources: The GOAT of the energy sector
Canadian Natural Resources (TSX: CNQ) is the GOAT (greatest of all time) when it comes to Canadian energy. It is the colossus in the energy patch. It produces 1.249 million barrels of oil equivalent (BOE) per day!
Its scale provides it a major advantage. It can sustain operations and pay its dividend for as lows $45 per barrel. Right now, when oil prices are trading at $80 per barrel or more, Canadian Natural is generating a massive windfall of cash.
Canadian Natural has a very strong balance sheet with modest debt for a company its size. This provides it considerable flexibility on how it rewards shareholders in the future.
It has raised its dividend for 26 consecutive years. That dividend has grown by 20% CAGR in that time! This is exceptional, especially for an energy company. With a 3.7% yield today, it is a little pricey. However, it’s a stock I’d be comfortable holding for many years to come.
