Mike, Author at MOOSE MARKETS

Best Canadian REITs with a Safe Dividend

Real Estate Income Trusts or REITs are known to be retirees’ best friends. Why? Because they share several key factors for income-seeking investors. Notably, Canadian REITs are known for the following:

Their generous dividend yield (may offer a yield over 3%)
Many pay their distribution monthly (fits well with your budget!)
REITs operate stable businesses (recession-proof!)
Their goal is to distribute as much money as possible (isn’t what you are looking for?)
They are an excellent inflation hedge! (most of them have contracts with escalators clauses).

While REITs are great to generate income at retirement, they can’t be analyzed using the same metrics as dividend stocks. For example, REITs don’t pay dividends, they pay a distribution that could be a mix of dividend, return of capital, and income. Therefore, REITs distributions are not eligible for the tax credit! Don’t worry, if you invest in a registered account such as an RRSP or a TFSA, you are all good.

Before we jump to the Best Canadian REITs

Besides their distribution, there are other real estate income trusts’ characteristics that make them a unique investment type. Here are a few of them:

REITs valuation

Valuing a REIT is like valuing any stock. I generally utilize the Dividend Discount Model to value them, since most of their profits are paid as dividends.

There are, however, a few key metrics to know.

Net Asset Value is another estimate of intrinsic value. It is the estimated market value of the portfolio of properties, and it can be determined by using a capitalization rate on the current income that is fair for those types of properties. This can potentially understate the value of the properties because properties may appreciate rather than depreciate over time. Compare the NAV to the price of the REIT.

Funds from Operations (FFO & AFFO)

The Funds from Operations (FFO) are far more important than net income for a REIT. To determine net income, depreciation is subtracted from revenues, but depreciation is a non-cash item and may not represent a true change in the value of the company’s assets.

So FFO adds back depreciation to net income to provide a better idea of what the cash income is for a REIT.

Adjusted Funds from Operation (AFFO) is arguably the most accurate form of income measurement of all regarding REITs since it takes FFO but then subtracts recurring capital expenditures on maintenance and improvements. It is a non-GAAP measure, but a very good measure for the actual profitability and the actual amount of cash flow that is available to pay out in dividends.

Overall, it is good to look for REITs that have diversified properties, strong FFO and AFFO, and a good history of consistent dividend growth.

Top 3 Largest Canadian REITs

One way to classify REITs is by market cap. Many investors will feel more comfortable in selecting a well-diversified business with a large property portfolio. Some REITs are present in many cities and provinces providing optimal geographic diversification. Here are the 3 largest Canadian REITs:

Canadian Apartment Properties REIT (CAR.UN.TO)

Market Cap: 8B

Dividend Yield: 3.15%

Sub-Sector: Residential

If an investor is looking for a steady source of income that will keep up with inflation, CAPREIT should be on their watchlist. In addition to enjoying a strong core business in Canada, CAPREIT is expanding its business in Ireland and the Netherlands. This gives them additional geographic diversification. CAPREIT continues to exhibit high-single-digit organic growth while raising additional funds to acquire more buildings. Unfortunately, the REIT neglected to increase its dividend in 2020. We cannot blame management for being overly cautious over the pandemic; they were fortunately stronger in 2021 and won back their dividend safety score of 3.

Dividend Growth Perspective

Over the past 5 years, management has been able to steadily increase its monthly distribution. The REIT continued its dividend growth tradition with a modest increase in 2019 (+3.6%). Management has proven its ability to grow its revenue both organically and through acquisitions. After taking a pause in 2020, CAPREIT came back with a generous dividend increase (+5.2%) from $0.115 per share to $0.121 per share earlier in 2021. The REIT won back its dividend safety score of 3 as it exhibits a strong FFO payout ratio of 62.6% for the full year of 2021. You can expect another dividend increase in 2022! The recent stock price drop brought the yield to about 3%; this looks like a good deal if you are prepared to be patient (e.g., expect more volatility throughout the rest of the year).

RioCan REIT (REI.UN.TO)

Market Cap: 6.40B

Dividend Yield: 4.87%

Sub-Sector: Retail

The REIT boasts an impressive occupancy rate. Over the past couple of years, REI sold non-core assets to concentrate on what they know best. We like management’s new focus, and we think it will help build additional value for investors into the future. RioCan can count on solid growth going forward, with 90% of its rents coming from the top 6 markets in Canada (with roughly 50% coming from the Greater Toronto Area). Unfortunately, the REIT must face constant headwinds coming from the retail brick & mortar industry. For this reason, RioCan is pursuing residential urban development projects (80%+ of its current pipeline). This could be an interesting growth direction, but we wonder: will it be enough to compensate for the brick & mortar retail industry’s slowdown? In the meantime, recent quarters tell that REI is growing FFO per unit, that’s a good start!

Dividend Growth Perspective

DAn investor shouldn’t expect much in terms of short-term dividend growth. When calculated using the DDM, we used a 3% dividend growth now that the REIT freed up some cash flow and increased its distribution by 6.25% in 2021. Let’s hope that their plans to expand into offices and apartment buildings will be profitable. The FFO payout ratio will be in line, but we expect RioCan to be more prudent with its cash flow going forward.

Allied Properties REIT (AP.UN.TO)

Market Cap: 4.13B

Dividend Yield: 5.39%

Sub-Sector: Office

Allied features one of the strongest balance sheets among Canadian REITs. It has much of its capital invested in low-cost projects and is now paying down higher interest debt at the same time as investing in new projects. AP maintains its unique expertise in managing and developing prime heritage locations, which will continue to be in high demand in the coming years. The REIT also counts on many technology clients which performed well during the pandemic. There are still concerns surrounding office REITs (AP generates ~70% of its income from offices), but this REIT has proven its resilience in difficult times. An investor will not be able to find many REITs that are able to systematically grow both their assets and distributions at the same time.

Dividend Growth Perspective

In evaluating a REIT, we hope that the dividend increase will at least match inflation. This is the case with AP. The company has posted a 2.7% dividend CAGR over the past 5 years and exhibits healthy FFO and AFFO growth. An investor can therefore expect 2-3% annual dividend growth going forward. As of May 2022, the REIT exhibits an AFFO payout ratio of 78% for the quarter. Allied increased its dividend by 3% in 2022, bringing its annual distribution payment to $1.75/share. This shows strong confidence from management and pleasant news for shareholders! Please note that Allied pays a monthly distribution.

Highest Yield REITs

If you are retired, your main concern may be how much income your portfolio can generate. In this case, you may be interested in finding out the most generous REITs. A word of caution, the following real estate income trusts haven’t increased their dividend in years. They are more at risk of cutting their distribution and your income is not protected by inflation.

True North Commercial REIT (TNT.UN.TO)

Market Cap: $558M

Dividend Yield:9.53%

Sub-Sector: Office

True North Commercial REIT is a Canada-based unincorporated, open-ended real estate investment trust. The Company owns approximately 49 commercial properties located in Alberta, British Columbia, Ontario, Novo Scotia and New Brunswick. The properties consist of office and industrial space, representing an aggregate of approximately 4.9 million square feet of gross leasable area. The Company is focused on growing its portfolio principally through acquisitions across Canada and such other jurisdictions where opportunities exist. All of the REIT’s properties are investment properties. Its properties include 3699 63 Avenue NE, 16th Avenue NW Calgary, Alberta, 855 8th Avenue SW Calgary, Alberta, 1020 68th Avenue Northeast Calgary Alberta, 810 Blanshard Street Victoria, British Columbia and 727 Fisgard Street Victoria, British Columbia.

In August of 2022, True North Commercial REIT reported an okay quarter as AFFO per share increased 14% (bringing the payout ratio from 106% to 96%), but reporting modest revenue growth of 3.6%. Q2 2022 AFFO basic and diluted payout ratio would be 112% and YTD 2022 AFFO basic and diluted payout ratio would be 111%. Be careful, it’s not the first time we mention the dividend is at risk.

Slate Office REIT (SOT.UN.TO)

Market Cap: $357M

Dividend Yield:8.94%

Sub-Sector: Office

Slate Office REIT (REIT) is a Canada-based unincorporated, open-ended real estate investment trust. The REIT is an owner and operator of office real estate. The REIT’s portfolio consists of approximately 32 real estate assets across Canada and includes two assets in downtown Chicago, Illinois. The REIT’s 61% portfolio is comprised of government or credit rated tenants. The REIT operates in Canada and the United States.

Inovalis REIT (INO.UN.TO)

Market Cap: $165M

Dividend Yield:8.14%

Sub-Sector: Office

Inovalis Real Estate Investment Trust (the REIT) is a Canada-based open-ended real estate investment trust. The REIT is formed for the purpose of acquiring and owning office properties primarily located in France and Germany and also in other European countries. It owns interest in office properties in France and Germany comprising approximately 1,450,000 square feet of gross leasable area. Its properties in France are located in the Greater Paris Region and the Inner Rim and remaining properties are located in Germany. Its France properties include Courbevoie, Sabliere, Baldi, Arcueil, Metropolitan, and Delizy. Its Germany properties include Duisburg, Trio, Bad Homburg, Stuttgart, Neu-Isenburg, and Kosching. The REIT is managed by Inovalis S.A.

Unfortunately, Inovalis recently cut its distribution! We have warned our DSR members for a potential dividend cut in May of 2022 and management announced the dividend cut in August of 2022. Since the share price plummeted, Inovalis is still among the highest yielding REITs, but not for a good reason…

My Favorite Picks

Finding the perfect REITs isn’t easy. As a dividend growth investor, I’m looking for a combination of a stable business with some growth perspective. I like when management can grow their property portfolio through investments and acquisitions while increasing distributions enough to beat inflation. I found this perfect balance among three Canadian companies:

CT Real Estate Investment Trust (CRT.UN.TO)

Market Cap: $3.88B

Dividend Yield: 5.16%

Sub-Sector: Retail

An investment in CT REIT is primarily an investment in Canadian Tire’s real estate business. If you think this Canadian retail giant will do well in the future, but you are more interested in dividends than pure growth, CT REIT could be a good fit for you. Canadian Tire has exciting growth plans that will eventually lead to more triple-net leases for CT REIT. The fact that CRT pays a monthly dividend with a yield of approximately 5% is highly attractive to income-seeking investors. On top of that, CT REIT exhibits a decent dividend growth rate policy matching and beating inflation. This makes it a perfect candidate for an income-focused portfolio. Canadian Tire has done well during the pandemic thus far and has proven the resilience of its business model. It’s a sleep well at night REIT that should please all income seeking investors.

Dividend Growth Perspective

This REIT continues to grow and maintain a low AFFO payout ratio of 75% (May 2022) which is in line with previous quarters. This means your distribution will likely continue to rise faster than the inflation rate going forward. Shareholders can expect to cash a solid 5% yield with a ~3% growth rate. This is a perfect example of a sleep-well-at-night type of holding. After a small increase in 2020 (+1.5%), CT REIT came back strong with increases of 4.5% and 3.3% in 2021 and 2022, respectively. Keep in mind many retail REITs cut their dividend over the pandemic. CT REIT has proven that an investor can trust the company as part of their retirement plan.

Canadian Net REIT (NET.UN.V)

Market Cap: $138M

Dividend Yield: 5.03%

Sub-Sector: Diversified

This is an interesting small REIT that has flown under the radar. Canadian Net REIT enjoys stable cash flows from its properties under the triple net lease formula (tenants handle insurance, taxes, and maintenance costs). Triple net lease REITs let tenants manage more risk as they handle all expenses involving the property. The REIT has high quality tenants such as Loblaws (25% of NOI), Walmart (11%), Sobeys (10%), Suncor (7%) and Tim Hortons (6%). The REIT’s portfolio makes this company quite resilient to any kind of recession. We got a good idea of how NET fared during the 2020 lockdowns as its revenue continued to increase. The bulk of its properties are situated in the province of Quebec, with a small number in Ontario and the Maritimes. We should keep in mind that the company trades on the TSX. This small cap (around $150M of market capitalization) is subject to low trading volume and strong price fluctuations. Follow this one quarterly to make sure the situation remains stable.

Dividend Growth Perspective

Don’t be alarmed by the dividend drop in 2018, as the REIT simply changed its payment schedule. In fact, this small cap has been continually increasing its dividend since its IPO in 2011. Their FFO payout ratio is maintained between 55% and 65% as their FFO per unit grew just as quickly as its dividend in the past decade (in fact, it grew even faster). In other words, the dividend is safe and will continue to increase. NET increased its dividend by 12% in 2021, giving investors a glimpse of what to expect. Bear in mind that the distribution is a mix of dividend and return of capital, depending on the year. An investor should make sure to visit their investors’ website before investing. This remains a small cap stock subject to high fluctuations in price per share.

Granite REIT (GRT.UN.TO)(GRP.U)

Market Cap: $5.01B

Dividend Yield: 3.97%

Sub-Sector: Industrial

GRT used to be an extension of Magna International (MG.TO). In 2011, Magna represented about 98% of its revenues. It is now down to 31% as at November 2021 (with Amazon as its second-largest tenant with 5% of revenue). Management has transformed this industrial REIT into a well-diversified business without adversely affecting shareholders. GRT now manages 114 properties across 7 countries. The REIT also boasts an investment grade rating of BBB/BAA2 stable. With a low FFO payout ratio (around 72%), shareholders can enjoy a 3%+ yield that should grow and match or beat the inflation rate. This is among the rare REITs exhibiting AFFO per unit growth while issuing more units to finance growth.

Dividend Growth Perspective

GRT has maintained a solid dividend growth policy over the past 5 years (4%+ CAGR). With its FFO payout ratio well under control, shareholders should expect a mid single-digit dividend growth rate going forward. The company even paid a special dividend in 2019. In fact, if the Magna International business is doing well, GRT will perform accordingly and continue increasing its dividend. We issued a buy rating on Granite some time ago. It’s still a buy, but the quick win has already been made on this security.

Learn how to invest in REITs

We are now in market correction territory, and the fear of losing more money is growing. What will happen if we keep up with continuous high inflation?

If you look at past performances, Real Estate Income Trust is one of the best performing classes during high inflation periods since the 70s. Unfortunately, not all REITs are created equal and you must do adequate research to make sure you buy the right ones.

In this webinar, I will answer questions like:

How about REITs paying a 10% yield
How to make sure the REIT’s distribution is safe
Which metrics to consider during my analysis?
Should I consider mortgage REITs?

Watch the free Webinar replay here

Best Canadian Tech Stocks in 2022

Canada has produced some of the best tech stocks recently. Over the years, the Canadian technology sector has produced great success stories: Shopify (SHOP.TO) and Lightspeed (LSPD.TO) saw their stock price skyrocketing during the pandemic.

With rising interest rates and the risk of a recession, investors became concerned about the lack of profit, and the entire sector plummeted in 2022. This year alone, Shopify lost more than 70% of its value, and Lightspeed isn’t far behind, with 50% of its value lost since January. Let’s just say they are a little less stable than Canadian REITs 😉

Is there hope for Canadian tech stocks? There are several excellent companies in this sector, and we will discuss the best opportunities at the end of this article.

But first, why would you invest in Canadian tech stocks anyway?

Why Canadian Tech Stocks? Which ones are the Best?

There are dozens of giant American technology companies, such as Apple, Microsoft, and Alphabet (Google). Can you name one Canadian tech companies that can compete with the best?

Out of the 41 tech companies in Canada, there are only 6 of them with a market capitalization above $10 billion:

Shopify Inc: $61B.
Constellation Software Inc: $46B.
CGI Inc: $26.5B.
Open Text Corp: $13.7B.
Ceridian HCM Holding Inc: $13.4B.
TELUS International (Cda) Inc: $10.6B.

Investing in small capitalizations will add volatility to your portfolio. However, it also improves your chances of finding a stock that could show triple-digit returns. Over the past 3 years, we count 8 companies showing more than 100% total returns:

Converge Technology Solutions Corp: 619.6%
Maxar Technologies Inc: 309.9%
Tecsys Inc: 192.2%
MediaValet Inc: 182.2%
Sierra Wireless Inc: 175.1%
Vecima Networks Inc: 114.2%
Kinaxis Inc: 110.1%
The Descartes Systems Group Inc: 103.1%

Now that this sector dropped significantly in 2022, it’s time to look for some bargains!

Top 4 Canadian Tech Stocks for September 2022

We have gone through the entire list of tech stocks in Canada to find the best companies (you can find the complete list at the end of this article). To identify our top 4, we considered their business model, growth vectors, and ability to generate recurring revenue. Here are the best Canadian Tech Stocks for September 2022 in no particular order.

Sylogist (SYZ.TO)

Yield: 6.90%

Market Cap: $178M

Industry: Software Application

Sylogist Ltd. is a software company that provides enterprise resource planning (ERP) solutions, including fund accounting, grant management and payroll to public service organizations. The Company operates through Public Sector segment.

Investment Thesis

Who doesn’t like a company offering overall improvements in business processes, quality, and systems control through their services? Sylogist exhibits a strong model of growth by acquisition and has almost no debt! It also offers a surprisingly strong yield for a small high-tech stock. Through their Enterprise Resource Planning (ERP) solutions, SYZ can help both public and private companies manage their intellectual property. Knowing how to manage data is crucial for businesses, so SYZ is at the right place at the right time. We like their customer diversification and their appetite for making acquisitions, coming from their new CEO. One of the major downsides of a company like this is that small caps can be quite volatile on the market. For that reason, investors should proceed with caution, or buy the stock and forget about the transaction for a while. Please note that EPS has been affected by a one-time executive compensation change in 2020 and 2021.

Constellation Software (CSU.TO)

Yield: 0.24%

Market Cap: $44.9M

Industry: Software Application

Constellation Software Inc is a Canada-based company that develops and customizes software for public- and private-sector markets. The firm acquires, manages, and builds vertical-specific businesses. Its operations are organized in two segments: Public Sector and Private Sector. The portfolio companies serve various markets including communications, credit unions, beverage distribution, tour operators, auto clubs, textiles and apparel, hospitality, and community care. The firm has operations in North America, Europe, Australia, South America, and Africa.

Investment Thesis

You won’t buy CSU for its yield, but you will buy this strong Canadian tech stock for its growth potential. Constellation Software has developed a unique growth by acquisition strategy. The company focuses on acquiring small niche tech companies or companies in the vertical market software industry. They now operate hundreds of companies in a decentralized way. Constellation is the ultimate growth machine!

Telus International (TIXT.TO)

Yield: 0%

Market Cap: $10.6M

Industry: Software Infrastructure

TELUS International (Cda) Inc is a digital customer experience innovator that designs, builds, and delivers next-generation solutions. Its clients include companies across several verticals, including Tech and Games, Communications and Media, eCommerce and FinTech, Healthcare and Travel and Hospitality. The solutions offered by the company include Digital Experience, Customer Experience, Advisory services, and Back Office and Automation among other services. Geographically, it derives a majority of revenue from the Philippines.

Investment Thesis

TELUS International is a spin-off company from Telus, the wireless company. Its focus on new technology and artificial intelligence opens the doors to a lot of growth in the future. We like TIXT’s geographic and service diversification. Being present in so many industries worldwide ensures a more stable business model. Revenues are expected to grow double-digit in the coming years.

Tecsys (TCS.TO)

Yield: 0.77%

Market Cap: $520.3M

Industry: Software Application

Tecsys Inc is engaged in the development and sale of enterprise supply chain management software for distribution, warehousing, transportation logistics, point-of-use and order management. It also provides related consulting, education and support services. The company serves healthcare systems, services parts, third-party logistics, retail and general wholesale distribution industries. Geographically, it derives a majority of revenue from the United States and also has a presence in Canada and Other Countries. Its only operating segment being the development and marketing of enterprise-wide distribution software and related services.

Investment Thesis

This small cap has much capital gain potential but a prospective investor should brace themselves for a roller coaster ride. TCS offers crucial supply chain management software for any ecommerce business. Considering delivery fees and the fierce competition in the retail world, optimizing the supply chain is a key element for any business shipping goods. Tecsys also helps large customers with complex distribution centers or in the healthcare business. With an only 15% market share of the healthcare market, there would appear to be much potential growth in that market. With over 1,000 customers and about half of their revenue coming from recurring contracts, TCS is building a strong foundation for its future growth. We like how annual recurring revenue (ARR) grows constantly and how TCS uses cross-selling techniques to obtain a net retention rate above 100% year after year.

There are better opportunities on the Canadian market…

There are great stocks to buy in the tech sector, but there is more on the Canadian market! Moose Markets presents you with the Canadian Dividend Rock Stars list: a selection of Canadian companies showing both income and growth. The Canadian Rock Stars List is a selection of the safest dividend stocks in Canada. Download the list for free here:

DOWNLOAD THE LIST HERE

The Complete list of Canadian Tech Stocks

If you are really curious, we have made a list of all tech stocks trading on the TSX. We have taken down the Canadian tech stocks with a market cap under $100M to make your research easier.

Symbol	Name	Industry	Market Cap	YTDReturns	Dvd Yield
SHOP.TO	Shopify Inc	Software – App	61,047	-72.37%	0.00%
CSU.TO	Constellation Software	Software – App	46,092	-7.20%	0.24%
GIB.A.TO	CGI Inc	Info Tech Services	26,476	-0.85%	0.00%
OTEX.TO	Open Text Corp	Software – App	13,683	-14.65%	2.21%
CDAY.TO	Ceridian HCM Holding	Software – App	13,374	-33.91%	0.00%
TIXT.TO	TELUS International	Software – Infra	10,627	-4.43%	0.00%
DSG.TO	The Descartes Systems	Software – App	7,843	-11.58%	0.00%
NVEI.TO	Nuvei Corp	Software – Infra	6,283	-45.77%	0.00%
BB.TO	BlackBerry Ltd	Software – Infra	5,068	-25.72%	0.00%
KXS.TO	Kinaxis Inc	Software – App	4,539	-7.28%	0.00%
LSPD.TO	Lightspeed Commerce	Software – App	3,986	-47.51%	0.00%
MAXR.TO	Maxar Technologies Inc	Communication Equip	2,527	-8.85%	0.15%
LWRK.TO	LifeWorks Inc	Software – App	2,251	29.28%	2.41%
ENGH.TO	Enghouse Systems Ltd	Software – App	1,843	-30.51%	2.08%
CLS.TO	Celestica Inc	Electronic Components	1,795	3.33%	0.00%
SW.TO	Sierra Wireless Inc	Communication Equip	1,546	77.89%	0.00%
CTS.TO	Converge Tech Solutions	Info Tech Services	1,500	-35.79%	0.00%
DCBO.TO	Docebo Inc	Software – App	1,456	-47.87%	0.00%
SFTC.TO	Softchoice Corp	Info Tech Services	1,299	4.29%	0.00%
DND.TO	Dye & Durham Ltd	Software – Infra	1,220	-60.61%	0.42%
IE.TO	Ivanhoe Electric Inc	Software – App	1,185	-8.86%	0.00%
ET.TO	Evertz Technologies Ltd	Communication Equip	1,096	12.17%	5.01%
CVO.TO	Coveo Solutions Inc	Software – Infra	769	-55.27%	0.00%
TC.TO	Tucows Inc	Software – Infra	747	-34.68%	0.00%
ABST.TO	Absolute Software	Software – App	684	15.50%	2.39%
TCS.TO	Tecsys Inc	Software – App	527	-30.96%	0.76%
CPLF.TO	Copperleaf Technologies	Software – Infra	474	-71.66%	0.00%
REAL.TO	Real Matters Inc	Software – App	427	-29.40%	0.00%
VCM.TO	Vecima Networks Inc	Communication Equip	409	24.54%	1.24%
CMG.TO	Computer Modelling	Software – App	372	10.85%	4.32%
EINC.TO	E Automotive Inc	Software – App	327	-62.58%	0.00%
MAGT.TO	Magnet Forensics Inc	Software – App	296	-24.70%	0.00%
ALYA.TO	Alithya Group Inc	Info Tech Services	281	-8.02%	0.00%
STC.TO	Sangoma Technologies	Software – Infra	263	-43.68%	0.00%
PAY.TO	Payfare Inc	Software – Infra	225	-42.65%	0.00%
QTRH.TO	Quarterhill Inc	Communication Equip	217	-28.77%	2.63%
TSAT.TO	Telesat Corp	Communication Equip	194	-56.42%	0.00%
QFOR.TO	Q4 Inc	Software – App	178	-47.06%	0.00%
SYZ.TO	Sylogist Ltd	Software – App	173	-42.12%	6.90%
THNC.TO	Thinkific Labs Inc	Software – App	158	-77.67%	0.00%
HAI.TO	Haivision Systems Inc	Software – Infra	151	-24.86%	0.00%

How to Buy Canadian Stocks

The best way to improve your financial situation and retire stress-free is to invest. But how do you buy Canadian Stocks? Which one should you be buying? Do you need a financial advisor or can you simply buy stocks on your own?

I’ve asked myself all those questions before I made my first trade on the market. At first, I felt overwhelmed by the information about the stock market. I didn’t know where to start, which type to account to choose, and which investing strategy (do you need one?) to pick. Fifteen years after I first bought my first shares of Power Corporation (POW.TO), I take a look back at what I’ve learned to help you start today (and avoid some of the mistakes I’ve made!).

I remember the very first thing I did once I got my first stable job was open an investment account. I was fortunate enough to meet with the right people telling me at a young age that the best way to build wealth was through investing. At the age of 23, I didn’t have much financial responsibility, and this was the perfect timing to start saving and investing. However, before opening a brokerage account and buying stocks of the first company that comes to my mind, I should have take the time to build a real plan.

Here are the steps I should have followed before making my first investment. This is a complete article that will be updated as I add more content to each section. You don’t need to read it in one shot (just bookmark it!). Just take one step at a time and you will learn how to buy stocks.

Step #1 Know yourself and know where you are going

Before you even think to buy stocks, you must first draw the picture of your financial situation and write down why you invest. Do you….

Wish to retire early or comfortably?
Fund your children education?
Buy a rental property or vacation property by the lake?
Or you just want to save money “just in case”?

Answering those questions, looking at your current financial situation and determining your risk tolerance will tell you a lot about the type of investing strategy you should pick (we will cover that later down the road).

The “classic and boring” investor profile questionnaire meets this purpose. Why is it so important to complete such questionnaire before you start investing? Because once you invest and the storm gets in and you lose money, it will be too late to know if you were able to handle it or not. It’s better to know if you are able to look down the cliff before you jump right?

The best questionnaire I found so far isn’t coming from a bank or an investing firm (that adds to the credibility!). In fact, it’s coming from the Financial Market Authority of Quebec (L’autorité des Marchés Financiers). You can give it a try here:

Investor profile questionnaire

Step #2 You need a brokerage account

Now that you know why you invest, it’s time to know how you can buy stocks on the market. Forget about movies where you call some shady brokers at their desk, you can do everything on your own!

A brokerage account is basically a platform enabling you to buy and sell stocks on the market. You can have multiple different accounts (RRSP, TFSA, RESP, etc.) with the same online broker. The money is being transferred from your bank account to your brokerage account as any other electronic fund transfer. Then, you can start buying stocks.

You can open an online brokerage account at your bank or you can go the savvy route and opt for Questrade. Questrade is a safe online broker offering the lowest fees. While most banks will charge you around $9.99 each time you buy or sell stocks, Questrade will do it for a starting price of $4.95. After that, shares are .01 each, to a maximum of $9.95.

For example, if you buy 100 shares of Royal Bank (RY.TO), you will pay $4.95 + $0.01*100 = $5.95. That’s 40% discount vs any other bank. Plus, if you want to buy ETFs (Exchange Traded Funds), you do it for free!

Here’s how I opened a Questrade account in less than 15 minutes:

You can open an account with Questrade today and start with $50 in free trades.

Step #3 Canadians can choose among plenty of account types

When you open a brokerage account, you have the choice of opening multiple types of accounts. Each account is getting taxed differently and has different purposes. In general, all stocks and ETFs can be bought through any account types. Here are the choices will have:

Cash & margin accounts

The cash account is the most straightforward of them. You can trade any type of investments in this account. However, there are no tax deductions when you invest money. Profit, interest or dividend are also subject to taxes.

This type of account can be managed individually (by yourself) or joint (with your spouse for example).

RRSP (Registered Retirement Savings Plan)

This is probably the most classic account type if you plan to retire. The RRSP is well-known by Canadians for its tax advantages. Whenever you invest money in your RRSP, the “contribution” is being deducted from your declared income on that year. Also, all profit, revenue or dividend made inside a RRSP is tax sheltered (you don’t pay taxes on them). On the other side, when you withdraw money from your RRSP account, the amount withdrawn will be added as a revenue in your tax report.

TFSA (Tax Free Savings Account)

Here’s the most flexible and tax optimized investing account for Canadian! The TFSA has been designed to shelter your investment from taxes. When you buy stocks in your TFSA, the “contribution” will not be deducted from your income. In other words; there is no tax return on your contributions. All profit, revenue or dividend made inside the TFSA is tax sheltered (no more taxes!).

The good news is you can withdraw money from this account at any year and never pay taxes on your withdrawals. Even better, you can put that money back the following year without any penalty (or obligations!).

RESP (Registered Education Savings Plan)

This is probably the most complicated account as it is not designed for you, but for your children tuitions. I will cover this account later down the road with a complete article on it. In the meantime, what you need to know is that both Federal and Provincial Governments will grant subsidies according to the amount you invest. Plus, all profit, revenue or dividends earned in this account is tax sheltered. The purpose of the RESP is to help you pay for tuitions.

TFSA or RRSP?

As you can see, chances are you will have to make the decision between having a TFSA or a RRSP. Most investors will end-up with both. If you are starting in the investing world, I think the TFSA would allow you more flexibility than the RRSP.

Step #4 Which type of investment is offered to Canadians?

Now that you have opened a brokerage account and you have selected the right account type, we are now one step closer in learning how to buy stocks. This section covers the type of investment you can buy.

While there are hundred of ways to buy stocks, we’ll focus on a few products that are simple to understand and will get you started. Because time is money and time in the market is everything.

Robo-Advisor

If you are completely new to investing and you don’t want to get your feet too wet at first, Robo-Advisors are probably the best solution. A Robo-Advisor is a proven recipe that has been cooked and assembled for you. All you need to do is to pick your asset allocation according to your taste (risk tolerance) and you invest your money in this “recipe”.

Fees are relatively low for a complete “packaged and managed” solutions and you don’t have to worry about anything. Robo-Advisors create portfolios using specific ETFs to cover all assets classes. In a single transaction, you buy hundred of stocks and get a fully diversified portfolio instantly.

ETF (don’t even think of mutual funds)

We are not going to cover mutual funds here because A) they are expensive and B) they don’t do better than ETFs in most cases.

Exchange Traded Funds (ETFs) are packaged investment products replicating a market, a sector or a strategy. For example, one of the largest Canadian ETFs is the ISHARES S&P TSX 60 INDEX ETF (XIU.TO). This ETFs will mimic a portfolio that would include the 60 stocks included in the … TSX 60 (the 60 largest companies trading on the Toronto Stock Exchange). Therefore, instead of buying individually 60 stocks and make sure that each of them shows the same weight in your portfolio, a single transaction give you access to this “bundle”. If the TSX 60 goes up by 4%, the ETF will follow very close behind (as there is still small fees to pay). In the specific case of the XIU, its management fees are 0.18%. Therefore, the XIU would show a return of 3.82%. Not bad for not having to manage 60 stocks portfolio, huh?

There are plenty of ETFs combinations and strategies possible and we will cover them in the future.

Stocks

If you don’t trust someone else to manage your money because nobody cares more about your portfolio than you do, buying individual stocks is the strategy you must follow. Buying stocks isn’t as overwhelming as it seems. What you need is a clear strategy determining where you will put your focus. There are several thousand stocks on the market, you can’t (and don’t want) to buy them all. Focusing on specific stock market areas will help you saving time and make the right investments for you.

Then, through a straightforward process, you will identify which stocks to buy and how much to invest in each position. I’m sharing key metrics I look at before buying any shares in step 8 of this article. In the upcoming sections, you will learn how to buy stocks and build a strong portfolio.

Other investment products

There are obviously a lot more to cover when you consider investing. If you are reading this article, this means you are at the beginning of your investing journey. You don’t necessarily need to know and master all type of investments. My most important advice at this point is to keep your portfolio simple. You don’t need the latest investment strategy combining options, preferred shares and leveraged ETFs. You just need to learn how to buy stocks and build a solid portfolio. Now let’s get started.

Step #5 Transfer money in [this is exciting]

At the time to open your brokerage account in step #2, you already linked your investment account with your bank account. This is how you will transfer money into your investment account in the first place. You can either transfer a lump sum of money or start by periodic payment plan.

The lump sum transfer will allow you to buy larger amount of stocks in one transaction. However, it could take time to save before you can start investing. If you have a large amount coming from an heritage, the sale of a property or a pension plan transfer, you should transfer it directly to your brokerage account and start investing.

You can start with as low as $25/month

Depending on your brokerage account, you can start a periodic payment plan for as low as $25/month. Now, there is no excuse preventing you to start buying stocks! If you start with less than $100/month, you are better off looking at ETFs instead of stocks. You will gain immediate diversification and you can buy ETFs for free through Questrade.

Periodic payment plan can be done weekly, bi-weekly (to time with your paycheck!) or monthly. It’s a great way to automate your saving habit and not thinking about it anymore. You will learn to live without this amount in your budget. This is another version of “pay yourself first” strategy.

Dollar Cost Averaging (DCA)

Periodic payments also enable you to use a strategy called dollar cost averaging. Since you will be buying more stocks or ETFs periodically, your cost of purchase (the price you pay per share) will be average up when the market is doing well and average down during challenging period.

Throughout time, you will have money invested at peaks, but also at bottom levels. When you buy during down markets, you get more shares for your bucks. When markets rise, you get to enjoy the ride and buy at each level.

The key in both strategy (buying stock with a lump sum vs DCA) is to stick with your strategy and not wait. Time in the market will be the greatest source of your return. Don’t ruin it by waiting.

Step #6 A few key definitions before you start

Now that you have money ready to buy stocks, it’s time to get a few key definitions before you place your first order. Some of them are basic terms, but some may surprise you. Let’s do a quick tour of some common terms used in the financial world.

Common Shares/stock

This is what we refer as a “stock”. When you buy stocks, you buy common shares of a company. This is a small (tiny winy) portion of a business. Holdings common share entitled you to have rights on your part of the company’s value, receive dividend (if any) and go to shareholder meetings.

Preferred Shares

Similar to common shares, preferred shares will usually pay a higher dividend and will entitle shareholders to first right on the company’s assets in case of bankruptcies. Dividends are not only higher, but they are paid first (before common shares dividend). Preferred shares are halfway between common shares and bonds. Shareholders do not have voting rights. They are usually less volatile and less liquid (less stocks bought or sold each day) than common shares. If you start investing, you want to stick with common shares.

Symbol/Ticker

When you place a market order in your brokerage account, you will need the symbol or the ticker of the company. For example, Royal Bank’s ticker is RY. If a website covers both US and Canadian stocks, chances are “RY” will become “RY.TO” or “RY-TO” to identify on which market common shares can be purchased. You can search for the ticker inside your brokerage account or via a free investing site by looking for a “quote” or “stock quote”.

Quote/Stock Quote

In your broker screen, you will read “quote” or “stock quote”. This is where you will get the latest information on the stock you want to purchase. It will give you information such as the ticker, the full company’s name, the latest transaction price, the “bid and ask price” and “bid and ask size” and general information on the stock such as the PE ratio, the dividend yield, market capitalization, etc.

Bid and Ask Price

Remember the stock exchange (the Toronto Stocks Exchange (TSE) or the New-York Stock Exchange (NYSE), etc) is a place to buy or sell stocks. The bid price will refer to the latest order placed from a buyer (an investor is willing to pay $23.66 per company ABC shares) and the ask price refers to the latest order placed from a seller (an investor willing to sell shares of company ABC at $23.74). The transaction will happen once a buyer will meet a seller’s price.

If there is a huge difference between the bid and the ask price, this means there isn’t many buyers and sellers and the stock price will be subject to higher fluctuations. Penny stocks are a good example of this situation.

Bid and Ask Size

Similar to the bid and ask price, the size refers to the amount of shares an investor is willing to purchase or sell. This tells you how “liquid” the stock is. By liquid, I mean how many shares will be exchanged (bought and sold) in the upcoming transactions. The more liquid, the “smoother” the stock price will fluctuate. This is more important when you trade, again, penny stocks and other small capitalization (low value) stocks. Big guys of the TSX 60 don’t have this problem.

Market Order

A market order happens when you enter the number of shares you want to purchase, but you are willing to buy them at market price (the lowest ask price). That’s usually not a problem when there are lots of transaction (liquidity) going on because you will pay a price very close to the latest price shown in your stock quote.

Stop Order

The stop order is when you put a number of shares and a specific price you want to buy or sell. The transaction can be placed for several days until the desired price is reached. The transaction will only trigger if the price is reached.

Investors use that to buy stocks at a better price or to protect their gains. If a stock surged from $22.34 to $37.09, an investor may want to protect his profit by setting a stop sell at $35.00. If shares ever go down to this price, the online broker will automatically sell your shares starting at $35. This means that if shares keep going down, you will continue to sell until you have sold all your shares. Your average price sold will likely be lower than $35.

This doesn’t mean that you will sell the stock at $35/share, just that the market order will be triggered at $35. Same rationale applies for buy stop order.

Limit Order

A limit order is similar to a stop order only that the former will only happens at a specific price. For example, if you put a limit order to buy 400 shares at $56.75 and only 200 are available at that price, you will end-up with 200 shares in your account and a pending order for 200 more at $56.75.

Step #7 Where do you get your information to buy stocks?

Now that you are all set and ready to start investing, it’s time to do some stock research! Unfortunately for us, Canadians, the offer is quite limited when you look for free information on Canadians companies.

The best free stock screener you can find is probably over at the TMX or Yahoo Finance where you can do research on both Canadian and US stocks. This is a good place to start building your watch list.

Then, general sites such as Reuters, Motley Fool, , and Morningstar will provide you with some useful information and quick analysis.

Then, one of the best places to find reliable information is the company’s investor relations site. Simply type “Royal Bank investor relations” and you will get directly to where you can read quarterly reports, investors presentations and annual reports. I’ve listed other free financial resources here.

Step #8 Key metrics to find the best stocks to buy

What is the most important when I look at the company is not the number, but my investment thesis. Before I get there, I must screen stocks with a very specific, yet simple stock screener. I’m looking for company with revenue growth, earnings growth and dividend growth. This is what I call the “Dividend Triangle”.

Growing revenue

My criteria for a positive revenue analysis is:

An increasing revenue trend line for at least the last 5 years;
A revenue growth trend line that is steeper than the company’s closest competitor;
Do I expect that the company has a better than reasonable chance of continuing with the steep revenue trend line in the next five years.

If the company cannot meet these requirements, then my analysis usually stops. However, there may be some cyclical stocks that see up and down periods in revenue growth. If this is a consistent pattern, then that is ok. Another thing I keep in mind is that very large companies (i.e. Royal Bank or Canadian National Railway) can have difficulty growing revenues year after year. I don’t necessarily look for a high revenue growth trend line, only a trend line that is up and growing faster than the competition.

Growing Earnings Per Share (EPS)

Earnings per share (EPS) is a much tougher thing to decipher for a company. Revenue is revenue and is hard for a company to lie about, other than recognizing sales before the product actually ships or something like that. EPS on the other hand can be easily manipulated by a company, and not just in illegal ways. There are a number of very legitimate methods a company can present earnings. During my analysis of earnings, I don’t necessarily concern myself with the exact EPS number, but more importantly the trend line. Just as I do with revenue, I require the following criteria be met:

An increasing EPS trend line for at least the last 5 years;
An EPS trend line that is steeper than the company’s closest competitor;
Do I expect that the company has a better than reasonable chance of continuing with the steep EPS trend line in the next five years?

The last point can be tricky, but further analysis of items such as ROE later on will help to determine how well management is performing in their ability to earn money for the company. I always keep in the back of mind that earnings can be manipulated. Again, I am looking at the trend.

The next step I take when analyzing EPS is to estimate what the EPS number will be 5 years out. This is obviously a very tricky thing to do, but it will be important later on when I start to value the stock. I look at the past 10 years of EPS history and earnings estimates from services such as Value Line to determine a number I am comfortable with. My approach is to be very conservative in my number to help build in a safety net if things get bad. This will ultimately give me a buy price for the stock that I believe has some safety built into it.

Dividend Growth

Once you’ve selected a company from your screener, the next step is to download their financial statements. If you are lucky, you will find an “Investor Fact Sheet” or “Recap” giving you some key ratios such as Earnings per Shares, Sales, Profit, and Dividend Payouts throughout the past years.

If you can’t get a hold of a one pager giving you the information right away, you’ll have to dig inside the financial statements. Take the annual reports as you will have more than one year and the info might have been calculated for you already.

When you look at the dividend growth history, it is preferable to look at the past five years. Instead of simply calculating the dividend growth annualized rate, I suggest you make a quick graph of the past 5 years dividend payout. It will give you a clear idea of which stocks have a strong dividend payout strategy compared to another. The graph can be as simple as the following:

Which looks a lot better than the following:

The first graph is a good indication of a solid company that is looking to increase its dividend year after year. For the record, the first graph is TRP dividend growth and the second graph is Encana dividend growth.

Looking at past dividend history is a good start to know if the company intends to boost its dividend in the future. But there is always a will and a way, right? So the company might have a strong dividend growth history over the past 5 years, it doesn’t mean that it is sustainable.

The relation between sales evolution and earning per shares will tell you 3 things:

How is the company’s main market doing (if sales are growing or not)
If are the company’s profits growing (are they making more profit or not)
How are the company’s margins doing (if the sales and EPS graph don’t head in the same direction, that’s a red flag or very nice news for the companies’ margin)

To ensure stable dividend growth over time, it’s obvious that you need stable sales and earnings growth. Sales growth will ensure future cash flow and earnings growth will ensure that the company makes more money as sales climb. If these two metrics are negative or growing erratically, you will need to dig deeper into the financial statements to explain it or simply pick another stock to analyze.

Royal Bank Example

Royal Bank is as close as a “perfect dividend triangle” you can find:

Source: Ycharts

In an ideal world, RY’s revenue and earnings would grow faster than its dividend, but you can see a steady trend for all three metrics. This is the kind of stock you want to buy for your retirement.

Step #9 Get your plan in motion; how to buy stocks summary

Before you start your investing journey and buy your first shares, remind yourself of the following key points:

#1 Keep things simple; overcomplicated will not necessarily improve your returns.

#2 Know yourself and know where you are going; having a financial plan and an investing strategy will come handy when the market goes crazy. Just stay focused on your plan when this happens.

#3 Write down why you buy stocks; elaborating your investment thesis for each purchase is crucial to build a solid portfolio.

#4 Don’t expect fast results; investing is all about playing the long game. After your purchase some shares, don’t refresh your account every hour. Don’t even look at it daily. Let time works is magic. Patient investors make good investors.

#5 Download this free ebook:
DOWNLOAD the WORKBOOK

I wrote an entire workbook to give you confidence and guide you through the first steps of your investing journey.

Canadian Dividend Aristocrats 2022

What’s a Canadian Dividend Aristocrat?

It’s a Canadian company showing 5 consecutive years with a dividend increase. Aristocrats are solid companies with a robust balance sheet. More on the specifics below.

Why it’s important to you?

Dividend growers tend to outperform the market over a long period of time and do it with less volatility. Dividend growers = more money, less stress. Investing in Canadian dividend growers should lead to recurrent investment income and help you achieve your retirement goals.

Can you invest in any Canadian Dividend Aristocrats and make money?

NO, but this Canadian Dividend Aristocrats guide will not only provide you with a list of stocks, but it will come with a methodology to select the right companies for your portfolio. We will also provide you with our favorite aristocrats.

Canadian Aristocrats and the U.S. Dividend Aristocrats

The Canadian dividend aristocrats is the little brother of a much larger and world-known dividend grower list. Dividend growth investors are familiar with the popular U.S. Dividend Aristocrats List. This list of dividend growers with over 25 consecutive years of dividend increases is famous around the world. What about Canadians? Do we have companies showing 25+ years of consecutive dividend increases?

While Canada does have a few companies that achieved that feat, the Canadian dividend aristocrats list would be too short if we would include them based on the US requirement. Canadian Aristocrats are companies that have increased their dividends for 5 consecutive years.

While many investors may think this is not enough to give an elite title to a company, I tend to disagree. I love picking stocks that have just started increasing their dividends and are on their way towards a great future. This is a unique opportunity for investors to select high-quality companies and still enjoy stock price appreciation going forward. We all wish we bought shares of Coca-Cola (KO) 50 years ago when it was a young dividend grower. You have a similar opportunity with the Canadian dividend aristocrats.

Skip directly to the good stuff, download our Dividend Rock Star List here:

Which Canadian stocks are Dividend Aristocrats?

As opposed to the U.S. Aristocrats, Canadian companies don’t have to show 25 years of consecutive dividend increases. In fact, even the 5 years minimum requirement isn’t as strict as we would think. Here’s the short list of requirements Canadian companies must meet to earn the Aristocrat title:

The company’s common stock must be listed on the Toronto Stock Exchange and be a constituent of the S&P BMI Canada. Stocks listed on the TSX venture, aren’t eligible.
The company’s market capitalization (Float-adjusted) must be at least $300M. We want companies of a minimal size. Yet $300M is quite permissive.
The increase in regular cash dividends for 5 consecutive years, but companies could pause their dividend growth policy for a maximum of 2 years within a said 5-year period. In other words; as long as the company intends to share the wealth, it has a good chance of being included among the elite dividend growers.

Canadian aristocrats Vs. U.S. aristocrats

Needless to say, it is easier to become a Canadian aristocrat than a U.S. aristocrat! To become a U.S. aristocrat, companies must:

Be a member of the S&P 500
Show 25+ consecutive years of dividend increases
Meet certain minimum size & liquidity requirements

It would be foolish to think selecting any aristocrats out of the list would make a good investment. On both sides of the border, we regularly see companies getting added or withdrawn for the list. This means the list you see in 2020 is those only who survived the test of time.

This article will not only provide you with a list of promising stocks, but it will also come with a methodology to select the right companies for your portfolio.

What are the Canadian dividend Aristocrats for 2022?

The list below contains 87 Canadian Dividend Aristocrats as of 2022. That’s a lot of companies that survived the 2020 pandemic. They are among the best Canadian dividend stocks. However, this list can be expected to change following the current pandemic situation. Dividends are one of the items companies tend to cut when feeling liquidity pressure.

You will also find very few Technology sector companies on the list as that sector has never been known for their steady cash payments to shareholders. You will, however, find many Financial Services companies along with some Industrials. Those two sectors have been and continue to be well-established dividend payers.

3 Steps to select the right aristocrats for your portfolio

As previously mentioned, going “all-in” with Canadian aristocrats may not make your portfolio any better. After downloading the Canadian dividend aristocrat lists, you can apply the following steps to ensure you pick only the best stocks possible.

#1 Focus on the sector you need

Whenever you isolate certain metrics, you will notice that certain sectors will be generally strong. This is because each sector thrives or faces tailwinds at different times. The timing of your research will determine which sector offers you the best opportunities. Unfortunately, you can’t buy all your stocks from the same sector. The DSR recession-proof workbook will guide you in this regard.

I would rather buy the best of breed for each sector than buy 4 stocks from the same industry. This will help my diversification and smooth my total returns over time. For example, the fact I had many tech stocks in my portfolio protected me to some extent from the March 2020 crash. Tech, utilities and consumer defensive stocks held the fort while my financials, industrials and consumer cyclicals were getting killed. Even more importantly, that diversification helped my portfolio bounce back relatively quickly.

#2 Start with the dividend triangle

If you have been following me for a while, you know that I’m a big fan of what I call the Dividend Triangle. This simple focus on three metrics will reduce your research time and help you target companies with more robust financials. I start all my searches with a look at companies showing strong revenue growth, earnings growth and dividend growth over the past 5 years. The detailed explanation is found in our recession-proof workbook, and I invite you to read and re-read that workbook as necessary.

First, download the Canadian dividend aristocrats list. Then, in a few simple clicks, you will set the filters and you can start hunting for the best stocks for you at that moment in time.

By selecting only companies showing positive numbers in the 5yr Rev growth, 5yr EPS growth and 5yr Div growth columns, you will find those companies with a positive dividend triangle.

This methodology covers all “regular companies”, but not REITs and other businesses that use non-conventional metrics instead of EPS. We will address those types of companies later in this letter.

#3 Priority to dividend growth, not yield

Now that you have narrowed down the number of stocks, it is time to trim that list further. Throughout the years, most of my best stock picks have been found amongst the strongest dividend growers. When you think about it, it totally makes sense. Those companies must earn increasing cash flows and show several growth vectors to be confident enough to offer a 5%+ dividend increase year after year.

Past dividend growth is a result of several good metrics at the same time. This usually means stronger revenue, consistent earnings growth, increasing cash flow and debt that is under control. We’ll dig into the other metrics later, but at first glance, a strong dividend grower will likely come with other robust metrics.

While not all my holdings show such strong dividend growth, I always search for the strongest dividend growers when selecting a new stock for my portfolio.

Using this simple 3 step methodology will narrow down your search to a few stocks per sector. It will make your final selections easier and your portfolio will likely perform better over the long run.

How to Calculate a Fair Value for Canadian Dividend Aristocrats

Valuation does play a major role in the buying process. However, this should not be the single factor that determines whether you buy or not. This is one factor among many. To be honest, I would rather buy an “overvalued stock” with a strong dividend triangle, great growth vectors and lots of potential for the next 10 years than buying an “undervalued stock” that has nothing else but a good yield and a poor valuation.

When I find a company I really like, but the valuation seems ridiculous, I’ll be tempted to put it on a watch list and wait for a while. I usually build this watch list on the side and when I’m done with one of my current holdings (e.g. the company doesn’t meet my investment thesis anymore), I pull out the watch list and check to see if valuations have changed. Once again, I’ll pick any “Alimentation Couche-Tard” (overvalued, strong growth) over any “Suncor” (undervalued, modest growth) of this world.

PE Ratio

At DSR, we use mostly two methodologies to determine a stock’s valuation. The first one is to consider the past 10 years of price-earnings (PE) ratios. This will tell you how the stock is valued by the market over a full economic cycle. You can then determine if the company shares enjoyed a PE expansion (price grows faster than earnings) or if the company follows a similar multiple year after year.

Dividend Discount Model

When you look at stocks offering a yield of over 3% with a stable business model, the dividend discount model (DDM) could be of great use. Keep in mind the DDM gives you the value of a stock based solely on the company’s ability to pay (and grow) dividends. Therefore, you will find strange valuations when you look at fast-growing companies with low yields (e.g. Alimentation Couche-Tard!). Find out more about the DDM model and its limitations here.

While the idea of receiving dividends each month is seducing, this is not what makes dividend growth investing magic. It’s the combination of capital growth and dividend growth (read total return) that truly generates the magic in your portfolio. You can download the complete list with additional metrics such as P/E ratio, dividend growth, dividend yield, revenue growth, etc. by clicking on the following button.

Best Canadian Dividend Aristocrats for 2022

Searching through almost 100 stocks could become tiresome. Using the Dividend Stocks Rock investing methodology, I’ve selected my favorite Canadian Dividend Aristocrats. You can download a complete eBook on our best Canadian Aristocrats here.

Alimentation Couche-Tard (ATD.TO)

Business Outlook

In the long-term, dividend payouts should grow in the double digits, and investors should see strong stock price growth. ATD’s potential is directly linked to its capacity to acquire and integrate additional convenience stores. Management has proven its ability to pay the right price and generate synergies for each acquisition. ATD exhibits a solid combination of the dividend triangle: revenue, EPS, and strong dividend growth. The company counts on multiple organic growth vectors such as Fresh Food Fast, pricing & promotion, assortment, cost optimization and network development.

The mediocre 0.80% dividend yield is so low that ATD shouldn’t even be considered as a dividend grower. However, the dividend payout has surged in the past 5 years (+144%) and the stock price jumped by over 75% (taking into account the stock price drop in early 2020). The only reason the dividend yield is so low is that ATD is on a fast track to growth. ATD will continue steadily increasing its payout while providing stock value appreciation to shareholders.

Potential Risks

Growers by acquisition are all vulnerable to occasionally making a bad purchase. While ATD’s method of acquiring and integrating more convenience stores has proven successful, it is important for them to not grow too fast or become too eager, leading them to possibly overpay in the name of growth. The company acted in this way when they tried to acquire French grocery store Carrefour. Still, we don’t think the next acquisition should be a source of concern with the current management team. Since then, no other deal was on the table and ATD didn’t get as many accolades from the market. Investors are also worried about the potential impact of electric vehicles on fuel sales, but we believe ATD will overcome this challenge by installing superchargers.

Canadian National Railway (CNR.TO)

Business Outlook

Canadian National has been known for being the “best-in-class” for operating ratios for many years. CNR has continuously worked on improving its margins. The company also owns unmatched quality railroads assets. CNR has a very strong economic moat as railways are virtually impossible to replicate. Therefore, you can count on increasing cash flows each year. Plus, there isn’t any more efficient way to transport commodities than by train. The good thing about CNR is that you can always wait for a down cycle to pick up some shares. There’s always a good occasion around the corner when we look at railroads as attractive investments. Finally, the cancellation of the Keystone XL pipeline will drive more oil transportation towards railroads. CNR will benefit from this tailwind. CNR lost the bidding war for Kansas City Southern (KSU) to Canadian Pacific. Management is being challenged and we should see better growth ideas emerge out of this drama.

CNR has successfully increased its dividend yearly since 1996. The management team makes sure to use a good part of its cash flow to maintain and improve railways while rewarding shareholders with generous dividend payments. CNR shows impressive dividend records with very low payout ratios. While the business could face headwinds from time to time, its dividend payment will not be affected. Shareholders can expect more high-single-digit dividend increases.

Potential Risks

Railroad maintenance is capital intensive and could hurt CNR in the future. There is a difficult balance to reach between an efficient operating ratio and well-maintained railroads. Continuous (and substantial) reinvestments are required to maintain its network. However, CNR continues to show one of the best operating ratios in the industry. CNR’s growth could also get hurt from time to time as it depends on Canadian resource markets. When the demand is low for oil, forest, or grain products, CNR will obviously slow down accordingly. We saw how quickly the wind turns. For example, the pandemic caused a slowdown in weekly rail traffic of about 10% during the summer of 2020. When the oil price is low, trucking takes some business away from railroads. CNR is a captive of its best assets. You can’t move railroads!

Fortis (FTS.TO)

Business Outlook

Fortis invested aggressively over the past few years, resulting in strong and solid growth from its core business. You can expect FTS’s revenues to continue to grow as it continues to expand. Bolstered by its Canadian based businesses, the company has generated sustainable cash flows leading to 4 decades of dividend payments. The company has a five-year capital investment plan of approximately $20 billion for the period of 2022 through 2026. Only 33% of its CAPEX plan will be financed through debt, while 61% will come from cash from operations. Chances are that most of its acquisitions will happen in the US. We also like the company’s goal of increasing its exposure to renewable energy from 2% of its assets in 2019 to 7% in 2035. The yield isn’t impressive at 3.30%, but there is a price to pay for such a high-quality dividend grower.

Management increased its dividend by 6% like clockwork for the past 5 years and has declared that it expects to increase dividends by 6% annually until 2025. We like it when companies show motivation for growth (through acquisitions) and reward shareholders at the same time. After all, Fortis is among the rare Canadian companies who can claim to have increased their dividend for 48 consecutive years. Fortis is a great example of a “sleep well at night” stock.

Potential Risks

Fortis remains a utility company; in other words, don’t expect astronomical growth. However, Fortis’ current investment plan is enough to make investors smile. Fortis made two acquisitions in the U.S. to perpetuate its growth by opening the door to a growing market. However, it may be difficult for the company to grow to a level where economies of scale would be comparable to that of other U.S. utilities. The risk of paying a high price for other U.S. utilities is also present. Finally, as most of its assets are regulated, each increase is subject to regulatory approval. While FTS has a long history of negotiating with regulators, it’s possible to see rate increase demands being revised. Please also note that Fortis’ revenue is subject to currency fluctuations between the CAD and USD currencies.

Royal Bank of Canada (RY.TO)

Business Outlook

Royal Bank counts on many growth vectors: its insurance, wealth management, and capital markets divisions. These sectors combined now represent over 50% of its revenue. These are also the same segments that helped Royal Bank to stay the course during the pandemic. The company has made significant efforts in diversifying its activities outside of Canada and has a highly diversified revenue stream to offset interest rate headwinds. Canadian banks are protected by federal regulations, but this also limits their growth. Having some operations outside of the country helps RY to reduce risk and improve its growth potential. The bank posted impressive results for the latest quarters driven by strong volume growth and market share gains which offset the impact of low interest rates. As interest rates are expected to rise in 2022, RY is in good position. Royal Bank exhibits a perfect balance between revenue growth.

Royal Bank has traditionally increased its dividend twice per year. Under normal circumstances, an investor can count on two low-single-digit dividend increases each year. The bank paused its dividend growth policy between 2008 and 2010 but returned with double-digit dividend growth increases in 2012. Regulators put a hold on dividend increases for all banks in 2020 and Canadian banks and lifted it in late 2021. Royal Bank went with a generous dividend increase of $0.12/share or 11%. You can expect the bank to go back to a mid-single digit dividend growth rate.

Potential Risks

After the 2018 financial market crash, the bank focused on growing its smaller sectors. While wealth management should continue to post stable income, the insurance and capital markets divisions are more inclined to variable returns. There were concerns with Canadian Banks’ management of their provisions for credit losses as the RBC loan portfolio was affected by the pandemic with higher provisions for credit losses (PCL) in 2020. The good news for investors is that PCL has declined to pre-pandemic levels. While loans and deposits increased, interest rate margins will continue to put pressure on earnings. On the flip side, Royal Bank is highly exposed to the Canadian housing market and higher interest rates may affect this market.

Telus (T.TO)

Business Outlook

Telus has grown its revenues, earnings, and dividend payouts on a very consistent basis. Telus is very strong in the wireless industry and is now attacking other growth vectors such as the internet and television services. The company has the best customer service in the wireless industry as defined by their low churn rate. It uses its core business to cross-sell its wireline services. The company is particularly strong in Western Canada. Telus is well-positioned to surf the 5G technology tailwind. Finally, Telus looks at original (and profitable) ways to diversify its business. Telus Health, Telus Agriculture and Telus International (artificial intelligence) (TIXT.TO) are small, but emerging divisions that should lead to more growth going forward.

This Canadian Aristocrat is by far the industry’s’ best dividend payer. Telus has a high cash payout ratio as it puts more cash into investments and capital expenditures. Capital expenditures are always taking away significant amounts of cash due to their massive investment in broadband infrastructure and network enhancement. Such investments are crucial in this business. Telus fills the cash flow gap with financing for now. At the same time, Telus keeps increasing its dividend twice a year showing strong confidence from management. You can expect a mid-single digit increase year after year.

Potential Risks

As competition increases among the Big 3 and with the arrival of Shaw Communications (SJR.B.TO) in the wireless market, future margins could be under pressure. Plus, the Federal Government would like to see more competition for the “Big 3” and will likely open the doors for new competitors going forward. Telus will eventually have to think about other growth vectors once the wireless market becomes fully mature. TV & internet will not be enough to avoid Telus becoming another Verizon (VZ) in 10 years. Finally, Telus’ debt has increased substantially from $12B in 2015 to $21B in 2022. As interest rates remain low, it is a good strategy to use leverage. However, this situation will not last forever since interest rates are now rising.

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Disclaimer: I hold shares of ATD.B, FTS, T, RY, CNR.

Best Canadian Stocks to buy in 2022

Most of the best Canadian stocks pay a dividend. Canadian dividend stocks are known for their stability when markets are rough, and for the income they provide investors quarterly. Companies operating in sectors such as telecoms, utilities, REITs and banks will protect you against market fluctuations and severe losses.

Not all dividend-paying companies are good investments. However, investing in dividend stocks could also lead to painful losses and income cuts. The risk of buying dividend traps or seeing your retirement income plummet due to the wrong stock selection happens too often.

The market creates bubbles and hurts your portfolio. You worked hard to invest money, and you shouldn’t lose it to the wolfs of Bay Street. There is a way you can invest safely in Canadian dividend stocks.

What are the best Canadian dividend stocks?

When I built my retirement portfolio, I focused on companies showing a combination of safe income and steady growth. Many of my choices are Canadian Dividend Aristocrats (companies showing several years of consecutive dividend increases). I added a few more metrics and used the DSR stock screener to refine my research.

Here are the best Canadian Dividend Stocks for 2022:

#14 Canadian Net REIT

#13 Emera

#12 Canadian National Resources

#11 Canadian National Railway

#10 Enbridge

#9 Granite REIT

#8 Magna International

#7 Algonquin Power

#6 Brookfield Renewable

#5 Royal Bank

#4 Fortis

#3 Telus

#2 Alimentation Couche-Tard

#1 National Bank

How to Buy in Canadian dividend stocks

#14 Canadian Net REIT

The REIT’s portfolio makes this company quite resilient to any kind of recession. We got a good idea of how NET fared during the 2020 lockdowns as its revenue continued to increase. The bulk of its properties are situated in the province of Quebec, with a small number in Ontario and the Maritimes. We should keep in mind that the company trades on the TSX. This small cap (around $150M of market capitalization) is subject to low trading volume and strong price fluctuations. Follow this one quarterly to make sure the situation remains stable.

#13 Emera

Emera is an interesting utility with a solid core business established on both sides of the border. EMA now has $32 billion in assets and will generate annual revenues of about $6 billion. It is well established in Nova Scotia, Florida, and four Caribbean countries. This utility is counting on several green projects consisting of both hydroelectric and solar plants. Between 2022 and 2025, management expects to invest $8.4 to $9.4B in new projects to drive additional growth.

These investments decrease the risk of future regulations affecting its business as the world is slowly making the shift toward greener energy sources. Most of its CAPEX plan (about 70%) will be deployed in Florida, where Emera is already well-established. In general, Florida offers a highly constructive regulatory environment; in other words, EMA shouldn’t have any problems raising rates. This is a “sleep well at night” investment.

#12 Canadian National Resources

In a world where the West Texas Intermediate (WTI) trades at $75+ per barrel, CNQ would be a terrific investment (here is your cue since the WTI is trading way over $70 lately!). It is sitting on a large asset of non-exploited oilsands and reaches its breakeven point at a WTI of $35. What cools our enthusiasm is the strange direction oil has taken along with the fact that oilsands are not exactly environmentally friendly. Many countries are looking at producing greener energy and electric cars. This could slow CNQ’s ambitions.

However, CNQ is very well positioned to surf any oil booms. The stock price has more than doubled in value since the fall of 2020. It has previously invested very heavily, and it is now generating higher free cash flow because of past capital spending. CNQ exhibited resiliency in 2020, and this merits a star in their book!

#11 Canadian National Railway

CNR has been known for being the “best-in-class” for operating ratios for many years. CNR has continuously worked on improving its margins and was among the first to do so. Today, peers have caught up and all railroads are managed in the same way. CNR also owns unmatched quality railroads assets. It has a very strong economic moat as railways are virtually impossible to replicate so we can therefore count on increasing cash flows each year. Plus, there isn’t any more efficient way to transport commodities than by train.

The good thing about CNR is that an investor can always wait for a down cycle to make an investment. We can often spot a good occasion around the corner since we see railroads as attractive investments. Finally, the cancellation of the Keystone XL pipeline will drive demand for oil transport via railroads and CNR will benefit. Management is being challenged and we should see more growth emerging from this challenging period.

#10 Enbridge

ENB’s customers enter 20-25-year transportation take or pay contracts. This means that ENB profits regardless of what is happening with commodity prices. ENB is also well positioned to benefit from the Canadian Oil Sands as its Mainline covers 70% of Canada’s pipeline network. As production grows, the need for ENB’s pipelines remains strong. Following the merger with Spectra, about a third of its business model will come from natural gas transportation.

Enbridge has a handful of projects on the table or in development. It must deal with regulators, notably for their Line 3 and Line 5 projects. Both projects are slowly but surely developing. The cancellation of the Keystone XL pipeline (TC Energy) secures more business for ENB for its liquid pipelines. ENB now has a “greener” focus with its investments in renewable energy.

#9 Granite REIT

With a low FFO payout ratio (around 72%), shareholders can enjoy a 3%+ yield that should grow and match or beat the inflation rate. This is among the rare REITs exhibiting AFFO per unit growth while issuing more units to finance growth.

#8 Magna International

MG is a leader in the auto parts industry, and this serves it well since many manufacturers tend to concentrate their processes with fewer suppliers that offer wider product ranges. This is exactly where Magna stands in the market. The company could literally design, develop and build a complete car on its own. While MG relies on Detroit automakers for about 40% of its sales, the overall automobile business is looking brighter.

Magna has also concluded several partnerships with European manufacturers and is involved with many electric vehicle manufacturers. Finally, there is a high switching cost for automakers to change between suppliers like Magna, making its niche a highly repetitive and stable market.

#7 Algonquin Power

Like many utilities in North America, solid growth is to be found outside of the company. AQN had approximately 120K customers in 2013 and now serves over 1M customers and achieved this impressive growth through acquisitions. The company “did it again” with the recent acquisition of Kentucky Power; the transaction is expected to close in Q2 2022 and should add another 165K customers. With a budget of $12.4B in CAPEX, AQN has several projects pending through to 2026. These include more acquisitions, pipeline replacements and organic CAPEX.

The utility counts on its regulated businesses to grow its revenue once those projects are funded. AQN has double-digit earnings growth potential for the foreseeable future but expect a short-term slowdown due to an aggressive leverage strategy and more common shares being issued.

#6 Brookfield Renewable

The future of energy will be found across hydroelectric, solar, and wind power. Approximately 50% of BEP’s portfolio is focused on hydroelectric power. New money is going toward solar and wind projects. The company has power plants across North America, South America, Europe, and Asia. BEP enjoys large scale capital resources and the expertise to manage its projects across the world. Management aims for a 5-9% annual distribution increase. This promise is backed by double-digit guidance that includes a mix of organic and M&A growth.

Investors are gravitating toward clean energy and BEP is well-positioned to attract them. BEP now offers shares under both a REIT and a regular corporate structure. From what we have seen on the market, the C class (BEPC) tends to attract more investors, meaning a stronger price.

#5 Royal Bank

The bank posted impressive results for the latest quarters driven by strong volume growth and market share gains which offset the impact of low interest rates. As interest rates are expected to rise in 2022, RY is in good position. Royal Bank exhibits a perfect balance between revenue growth.

#4 Fortis

Only 33% of its CAPEX plan will be financed through debt, while 61% will come from cash from operations. Chances are that most of its acquisitions will happen in the US. We also like the company’s goal of increasing its exposure to renewable energy from 2% of its assets in 2019 to 7% in 2035. The yield isn’t impressive at 3.30%, but there is a price to pay for such a high-quality dividend grower.

#3 Telus

Telus is well-positioned to surf the 5G technology tailwind. Finally, Telus looks at original (and profitable) ways to diversify its business. Telus Health, Telus Agriculture and Telus International (artificial intelligence) (TIXT.TO) are small, but emerging divisions that should lead to more growth going forward.

#2 Alimentation Couche-Tard

ATD exhibits a solid combination of the dividend triangle: revenue, EPS, and strong dividend growth. The company counts on multiple organic growth vectors such as Fresh Food Fast, pricing & promotion, assortment, cost optimization and network development.

#1 National Bank

NA has targeted capital markets and wealth management to support its growth. Private Banking 1859 has become a serious player in that arena. The bank even opened private banking branches in Western Canada to capture additional growth. Since NA is heavily concentrated in Quebec, it concluded deals to provide credit to investing and insurance firms under the Power Corp. (POW). The stock has outperformed the Big 5 for the past decade as it has shown strong results.

National Bank has been more flexible and proactive in many growth areas such as capital markets and wealth management. Currently, NA is seeking additional growth vectors by investing in emerging markets such as Cambodia (ABA bank) and in the U.S. through Credigy. We wonder if it can it have more success than BNS on international grounds. It seems like they may have found the right formula to do so! This is one of the rare Canadian stocks having a near-perfect dividend triangle.

How to Buy in Canadian dividend stocks

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Dogs of the TSX – Beat The TSX!

What if you could beat the Canadian market return by selecting ten stocks each year? The Dogs of the TSX strategy gets its name from the Dogs of the Dow, an investing technique well-known in the U.S. for selecting the “dogs” (paying a higher dividend yield) of an index.

The Dogs of the TSX, or Beat the TSX (BTSX) strategy was developed by a professor named David Stanley where he suggested that by selecting the highest dividend yielder of the TSX each year, you could beat the index.

If you are tired of losing money on bad stocks, this strategy could help you quickly build a solid core portfolio.

The Dogs of the TSX in a nutshell

One of the BTSX method’s main advantages is its easy implementation. You can start trading with four simple steps:

#1 List the TSX 60 index by dividends. The TSX 60 is the index of the 60 largest Canadian companies. Most of them are blue-chips like banks or telecoms and pay a dividend.

#2 Select the top 10 yielding stocks from the TSX 60. The ten most generous stocks are called the dogs of the TSX. As they offer the largest yields, they technically haven’t performed the year before. Therefore, their yield is higher, and you buy them at a “relatively” low price.

#3 Buy the top 10 yielding stocks in equal weight. Boom! You build your core portfolio for the year! The strategy is based on buying the dogs in January.

#4 Each January, review the new Dogs of the TSX and trade accordingly. Each year, you must do steps from #1 to #3 to ensure you always have the highest Canadian yield stocks.

The Dogs of the TSX Portfolio 2022

Here’s the list of the top 10 yielding stocks from the TSX 60 for this year.

All you have to do is to invest an equal amount of money in each dividend stock to build your portfolio.

Symbol	Name	Sector	Dvd Yield Fwd	Dvd 5yr	P/E
AQN.TO	Algonquin Power & Utilities Corp	Utilities	5.42%	8.79%	26.82
BCE.TO	BCE Inc	Communication Services	5.80%	5.09%	19.54
BNS.TO	Bank of Nova Scotia	Financials	5.43%	4.56%	9.28
ENB.TO	Enbridge Inc	Energy	6.09%	9.52%	19.83
MFC.TO	Manulife Financial Corp	Financials	5.85%	9.60%	4.93
POW.TO	Power Corporation of Canada	Financials	5.81%	6.90%	8.21
PPL.TO	Pembina Pipeline Corp	Energy	5.31%	5.84%	20.75
SU.TO	Suncor Energy Inc	Energy	4.64%	-1.97%	9.66
T.TO	Telus Corp	Communication Services	4.69%	6.68%	23.27
TRP.TO	TC Energy Corp	Energy	5.09%	9.02%	21.25

30 years of outperformance

Matt from Dividend Strategy is doing a monk’s work to keep track of this strategy. Shockingly, The Dogs of the TSX has outperformed the market for 30+ years!

Source and more graphs at BTSX portfolio by Dividend Strategy

Why the BTSX works so well?

I was a bit skeptical when I heard of this strategy at first. It’s unlikely that such a simple strategy would outperform the market consistently. I’ve done my research to understand the success rate behind the BTSX strategy.

#1 Buying blue-chips quality stock. The TSX 60 refers to the 60 largest stocks in Canada. Chances are, those companies will be around for a while.

#2 Canadian stocks have a great history of paying and increasing dividends. There are many dividend aristocrats among the TSX 60. Dividend growers tend to outperform the market over a long period of time.

#3 Buy low, sell high. The Dogs of the TSX is based on a classic investment principle: buy when stocks are low and sell them at a higher price. By rotating your portfolio each year with the new “dogs”, you ensure to buy the best stocks at the lowest price while selling those with a great return over the past 12 months.

#4 It’s relatively easy to beat the Canadian market. The fact that the BTSX is working isn’t necessarily an achievement. The Canadian market is heavily concentrated in two sectors: Financials and Energy. By investing in other sectors, you can easily beat the TSX.

Why I don’t use the Dogs of the TSX strategy

Investors can beat the TSX with an easy-to-use and straightforward strategy. Why am I NOT using the Dogs of the TSX for my portfolio?

#1 Know what you hold and why you hold it. It is one of the foundations of my investment model. I prefer to research and understand the company’s business model before I add a stock to my portfolio. Buying stocks based on an index and a dividend yield seem too simplistic. It won’t hold very well during market crashes.

#2 Sector concentration. The BTSX forces you to buy only ten stocks based on the dividend yield regardless of the sector. The Dogs of the TSX 2022 shows 30% of financial companies and 30% of energy stocks. With 2/3 of your money invested in two industries, your portfolio is subject to intense volatility.

#3 Transaction costs and taxes. Rotating your stocks each year could trigger several transactions and prevent you from deferring tax on capital gains. This will have a severe impact on your returns in a non-registered account. Investing in the Dogs of the TSX in a RRSP or a TFSA account is best.

#4 I already beat the TSX. I’ve been a dividend growth investor since 2010. My years of experience in the financial industry and research helped me build a proven investing strategy. My results are not only better than the TSX, but they are also better than the BTSX strategy. Therefore, I don’t see any reasons to change something that already works.

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