Dividend stocks are favored by investors not only in the US but also internationally. Canadian dividend companies, known for their robust cash flows, steady dividends, and solid balance sheets, have been particularly popular. However, these stocks lost some appeal in recent years as investors shifted their focus to other asset classes. According to the Canadian Imperial Bank of Commerce, there is now a renewed interest in Toronto's dividend-paying stocks, which had been overlooked for over two years. This resurgence is expected to grow as short-term interest rates in Canada continue to decline. An analyst at the bank, Ian de Verteuil, noted in a research report that the shift back to high-yielding equities, such as utilities, REITs, and communications, is just beginning.
If interest rates continue to decline, the team anticipates that Canadian investors will redirect approximately $220 billion (US$161 billion) into dividend-paying stocks, moving away from fixed-income products. During periods of higher interest rates in Canada, dividend-paying equities were largely overlooked as investors sought better returns in term deposits, high-interest savings account ETFs, and technology stocks. As a result, the S&P/TSX Composite High Dividend Index has underperformed compared to the broader Canadian and US markets in both 2023 and the early part of 2024, in terms of both price appreciation and total returns.
The recent underperformance of dividend stocks contrasts with their historical resilience. According to a report by Morningstar, following the 2008 financial crisis, investors gravitated toward income-focused strategies, valuing the perceived safety they offered. In 2008, funds in the Canadian Dividend and Income Equity category experienced a 24% loss, significantly less than the 33% drop in the Canadian benchmark index. Similarly, in 2011, when the TSX fell over 8%, the average fund in this category declined by only 0.8%. The report further mentioned that since 2008, dividend-focused funds have excelled at protecting investors' capital during market downturns, capturing just 65% of the downside. These funds have also performed well during market upswings, capturing 75% of the gains. From January 2008 to June 2015, this category outperformed the broader market, delivering an annualized return of 4.7% compared to 3.7% for the TSX.
Concentrating on higher-yielding Canadian stocks would involve increasing exposure to sectors already heavily represented in the index, particularly financials. To achieve high yields, analysts recommend directing investments toward utilities, REITs, telecommunications, and financial sectors. Ian de Verteuil advised that Canadian investors should maintain this shift into these sectors in the future. However, he pointed out that securing high yields in Canada is challenging, as the high-yield bond market is quite restricted. Here are some other remarks from the analyst:
“Canadian investors have always struggled to find yield. Unlike the US, there are very few options for ‘high’ nominal yield – there is no Canadian municipal bond market and the high-yield bond market north of the border is extremely narrow.”
While Canadian dividend equities present an attractive option for investors, analysts consistently recommend diversifying across various regions to optimize returns. Due to the tendency of dividend investing to result in a heavier concentration of financial and energy stocks—common in the domestic market—income-focused investors should ensure their portfolios are well-diversified and aligned with their income objectives. That said, we will take a look at some of the best dividend Canadian stocks for income investors.
Our Methodology:
For this article, we scoured the list of S&P/TSX Canadian Dividend Aristocrats Index, which includes Canadian companies with at least five years of dividend growth track records. From that list, we selected stocks that are traded on American stock exchanges and sorted them by the number of hedge fund holders in our database that also had positions in those companies at the end of Q3 2024. This means that these Canadian companies are the most famous among hedge fund investors. The companies mentioned below also have strong dividend histories and healthy balance sheets, which make them reliable investment options for income investors. The stocks are ranked in ascending order of the number of funds that have stakes in them as of Q4.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here)
A close-up of renewable energy turbines capturing the power of a windy sky.
Enbridge Inc. (NYSE:ENB) ranks fourth on our list of the best dividend Canadian stocks for income investors. The Canadian multinational pipeline and energy company posted strong earnings in the third quarter of 2024. During the quarter, the company finalized the acquisition of three US natural gas utilities, a transaction initially announced in September 2023. These new assets complement Enbridge’s existing low-risk business model, delivering steady cash flow and opening doors to swift growth opportunities. The company reported a revenue of $10.66 billion, marking a substantial increase of over 48% compared to the same period the previous year and surpassing analysts’ expectations by $5.77 billion.
Enbridge Inc. (NYSE:ENB) has steadily expanded its energy infrastructure while increasing its emphasis on cleaner energy sources like natural gas and renewables. The growing industrial activity and rising electricity demand in the US and Canada are anticipated to boost natural gas consumption further. Data centers, in particular, are playing a key role in this increased electricity usage, driven by the expanding demand for AI applications. Many operators of these facilities are opting for cleaner energy solutions, such as renewables and natural gas, to power their operations. The stock is up by nearly 18% in the past 12 months.
Enbridge Inc. (NYSE:ENB) reported a solid cash position for the quarter, generating close to $3 billion in operating cash flow and $2.6 billion in distributable cash flow. On December 3, the company announced a 3% rise in its quarterly dividend, bringing it to C$0.9425 per share. This increase extended Enbridge's impressive 30-year track record of dividend growth. The stock supports a dividend yield of 6.16%, as of January 10.
As of the close of Q3 2024, 26 hedge funds, down from 32 in the previous quarter, owned stakes in Enbridge Inc. (NYSE:ENB), as per Insider Monkey's database. The total value of these stakes is $3.2 billion. With nearly 72 million shares, GQG Partners was the company's largest stakeholder in Q3.
Overall ENB ranks 4th on our list of the best Canadian dividend stocks for income investors. While we acknowledge the potential for ENB as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ENB but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
