Companies listed on the TSX that have paid dividends to shareholders for 5 years or longer belong to a class of their own – dividend aristocrats. These companies are generally large and stable enough to pay shareholders – year in and year out – a portion of the profits, and they might even provide a little capital appreciation for those who stay invested long term.
If you’re looking for a reliable source of fixed income, there may be no dividend stock safer than an aristocrat. Below, we’ll delve deeper into the top Canadian dividend aristocrats and help you decide if they have a place in your portfolio holdings.
What are dividend aristocrats?
For a company to be a dividend aristocrat stock, it must meet three criteria:
- The company must be listed on the Toronto Stock Exchange (TSX)
- Its market cap must be at least $300 million.
- It must have increased its dividend for at least five years in a row.
The number of dividend aristocrats in Canada has hovered around 88 to 93 companies.
Many of these aristocrats are blue-chip stocks with large market caps and an established business model allowing little or no leeway for explosive growth. With less focus on growth, the company can spend less capital on business operations and share more profits with shareholders. These blue chips typically produce steady profits so they can continue their dividend programs unabated.
Keep in mind that a company can be a dividend aristocrat even if its dividend yield has stayed the same or decreased. As a reminder, dividend yield is a percentage that tells you how much of a company’s share price is paid out in dividends annually. This yield fluctuates with the market and can be higher or lower based on how well the stock is performing.
Top Canadian dividend aristocrats
Below are some Canadian dividend aristocrats you might want to consider.
| Dividend aristocrats | Description |
| Canadian Utilities (TSX:CU) | Utility company with the longest history of dividend growth in Canada |
| Fortis (TSX:FTS)(NYSE:FTS) | Large utility company with over 50 years of consecutive dividend growth |
| Enbridge (TSX:ENB)(NYSE:ENB) | Mid-stream oil company with over 28 years of dividend growth |
1. Canadian Utilities
Canadian Utilities is Canada’s only dividend king – a company that has increased its dividend but for not just 5 but 50 years.
Yes, for 50 consecutive years – going on 51 – Canadian Utilities has given shareholders a slight increase in their dividend. This is mostly a result of the company having a strong financial footing: as a utility provider, CU provides essential services that customers need regardless of the economy’s health.
Even as a stable and relatively boring stock, Canadian Utilities does have some room for growth, as it’s beginning to transition its electricity generation from fossil fuels to renewable energy. This could attract more customers over the long term, not to mention more investors who want to support that transition.
2. Fortis
Fortis is is one of Canada’s largest utility holding companies – and also one of the oldest Canadian dividend aristocrats. The company has increased its dividend for 48 consecutive years and is now only 2 away from joining Canadian Utilities as a dividend king.
Much like Canadian Utilities, Fortis’ dividend program is bolstered by the company’s recurring revenues. As a utility company, Fortis generates and distributes electricity to over 3.4 million clients. The diversified global energy company has 10 utility operations that stretch from east and west Canada all the way to the Caribbean. 1
Fortis has an eye on green energy, too, and has committed to eliminating greenhouse gases by 2050.
3. Enbridge
Enbridge is a midstream oil company that operates more than 17,000 miles of active pipelines in North America. As a dividend aristocrat, it has increased its payout for 28 consecutive years. ENB also pays the highest dividend of all dividend aristocrats.
But there are other reasons to consider Enbridge, not just those related to dividends. The company’s oil operations are crucial to Canada’s economy and GDP growth. In 2021 alone, the energy infrastructure giant delivered more than 4 million barrels of crude oil and liquids per day across North America (both across Canada and into the U.S.).2
As such, Enbridge’s oil to the United States represents more than 65% of U.S.-bound Canadian exports and 30% of the crude oil produced in North America. The future of oil stocks is admittedly uncertain. But for the short-term, Enbridge has a powerful hold on the Canadian economy.
Pros of investing in dividend aristocrats
- Reliable source of passive income. For a solid fixed-income investment, Canadian dividend aristocrats are the cream of the crop.
- High potential for more dividend increases. It’s built into the definition: for these stocks to hold onto to the title of dividend aristocrat, they must increase their payout.
- Steady dividend program signals financial health. Companies with consistent dividends typically have a strong financial footing.
- Dividend aristocrat stocks held in RRSPs and TFSAs come tax-free. You’re not required to pay taxes on dividends when your stocks are held in a tax-sheltered account, such as an RRSP or TFSA.
Cons of investing in dividend aristocrats
- Dividend increases may be insignificant. Just because a company must increase its dividend to remain an aristocrat doesn’t mean it will increase it by a large percentage.
- Dividend aristocrats may have less upside potential. You’ll generally get higher returns on growth stocks than dividend aristocrats. Many of these companies are blue chips or large caps and have little growth left in them.
- Dividends may be taxable. For dividend aristocrat stocks held in a non-registered retirement account, the CRA will require you to pay taxes.
- Canadian dividend aristocrats aren’t diversified. More than 40% of Canada’s aristocrats belong to the financial and energy sector. While this is symptomatic of the TSX, it still poses a problem for investors whose portfolios already have a large presence of those market sectors.
Should you invest in Canadian dividend aristocrats?
Dividend aristocrats are ideal for investors who want a steady stream of passive income and don’t mind sacrificing upside potential to get it. These stocks might also be beneficial to growth stock investors who want some defensive stocks to bring more stability to an otherwise volatile portfolio.
If you’re looking for growth, however, you might want to look elsewhere. While it’s not rare for a dividend stock to appreciate, their share prices almost never bounce as wildly as small caps and growth stocks.
For those who want decent exposure to a slew of Canadian dividend aristocrats — without having to buy shares in all of them — you might want to consider a dividend aristocrats ETF. Buying one share of an aristocrat ETF allows you to track a broader market, which could add even more stability to an already safe investment.