Category: <span>Best Canadian Stocks</span>

Ah, forever stocks! I love them. Here I present nine stocks I include in my Canadian Forever Stock Selection and briefly explain why. A forever stock is one I’d buy for the long haul, 10+ years. It offers reliable growth and is so solid and resilient that I can forget about it and sleep soundly.

Let’s be clear, my selections aren’t based on timing; I’m not saying that they are great buys right now, but rather that I’d buy any of them and that, if I couldn’t monitor them quarterly as I do, I wouldn’t worry.

Forever stocks share several of these qualities:

Diversification
Market leaders
Economies of scale
Predictable cash flow
Stable and/or sticky business model
Essential products / services
Multiple growth vectors
Long dividend growth history

This list is partial; clearly, there are other contenders that could be on it. I have covered this part more in-depth on The Dividend Guy Blog.

Telus (T.TO / TU) – Communication Services

The competition chases media, while Telus pursues technology improvements, like AI use in healthcare and agriculture. With our aging population, healthcare technology will be in high demand. The same is true for farmers optimizing their land use while facing the effects of climate change among other headwinds. Strong in the wireless industry. Telus uses its extra cash to diversify. Customers can cut cable, but not healthcare or food.

While there are concerns about its debt level, I expect it is a short-term problem; Telus has recently increased cash flow from operations, and its massive investments in wireless infrastructure and its other growth projects will generate more cash flow.

Magna International (MG.TO / MGA) – Consumer Discretionary

I hesitated over Canadian Tire, but the future of retail isn’t as evident as the need for transportation. Whether our cars run on fuel, electricity, or levitate, Magna will manufacture parts for car makers. MG’ size and scale enables it to partner-up, design, and produce parts for the largest car markers. Having joint business with manufacturers makes MG essential to the auto industry.

Magna doesn’t look like a winner right now with its squeezed margins since the chain supply disruptions started in 2021. I believe it’s a winner for the long run due to its deep connection with major car makers.

Alimentation Couche-Tard (ATD.TO) – Consumer Staples

Grocers could be good choices, but I worry about their growth potential in light of the competition and pressure their margins will face in the coming years. Canada’s low population density makes it difficult to increase revenue with new stores and maintain margin; transportation cost eats some of the revenue increases.

Alimentation Couche-Tard has a unique business model and an uncanny ability to adapt. Ten years ago, ATD was a growth by acquisition machine counting on fuel sales to boost income. Its management team never writes cheques carelessly, preferring to walk away from bad deals. A decade ago, it bought Statoil Fuel & Retail. This allowed ATD to gain insight into the behavior of electrical vehicle owners, convincing it of its network’s suitability to an electrifying world.

ATD shows a great mix of organic growth and acquisitions. What’s not to love?

Alimentation Couche-Tard dividend triangle shows sustained revenue, EPS and dividend growth over 10 years — ATD.TO revenue, EPS, and dividend evolution

Canadian Natural Resources (CNQ.TO / CNQ) – Energy

A while back, I would have selected Enbridge or TC Energy because pipelines are amazing; they get paid no matter what happens in the markets. However, with rising alarm about fossil fuel emissions, regulators, inflation, labor shortage and high interest rates, trouble is brewing.

One company truly impressed during the 2020 oil crash, Canadian National Resources. While Suncor cut its dividend under these dark skies, CNQ increased theirs!

CNQ proved its long-held claim: it has the most diversified and durable energy portfolio. With this unique asset mix, it manages production according to changes in commodity prices, like having unlimited food you sell when prices are at their highest and keep for yourself when prices are down.

With over 20 years of consecutive dividend growth, even during the toughest times in the industry, CNQ deserves praise, and maybe a place in our portfolio.

For more great Canadian stock ideas, download our Rock Stars list, updated monthly!

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Canadian National Railway (CNR.TO) – Industrials

Many candidates in this sector, but nothing as boring and steady as railroads. I chose CNR over CP due to its long dividend growth history. CNR is the largest Canadian railroad operator, nobody can replicate its asset base. This barrier to entry is impenetrable and the need to transport goods won’t slow down. Canada is known for its resources, CNR is known to be able to move them. A match made in heaven.

Constellation Software (CSU.TO) – Information Technology

In the tiny list of Canadian tech companies with robust growth, Constellation Software isn’t showing any signs of slowing down. OK, not a dividend payer, yielding 0.2% without recent increases; I picked it for its impressive list of acquisitions. CSU manages hundreds of niche software companies, as its well-chosen name reflects! How it approaches acquisitions and selects targets is remarkable. As CSU itself puts it: “We buy Good vertical market software companies. Now and again, we buy an Exceptional company.”

Constellation Software's dividend triangle showing robust revenue and EPS growth and a flat dividend — CSU.TO – Robust growth in revenue and earnings, but not a dividend payer

CCL Industries (CCL.B.TO) – Materials

This one should get more attention! CCL is the world’s largest producer of pressure-sensitive and specialty extruded film materials. We’re talking about labels and foil tapes (think post-its on steroids). I’ve recently posted a detailed article covering CCL; read it here.

Granite (GRT.UN.TO) – Real Estate

One of the first industrial REITs in specialized industrial properties and high tech, Granite has an impressive long term development plan. After being spun-off by Magna International in 2003, Granite diversified. While Magna remains its largest tenant, GRT focuses mostly on distribution and e-commerce properties, where Amazon is its largest tenant.

With a low FFO payout ratio, shareholders enjoy a 3.5%+ yield that should grow to match or beat inflation . Also, it’s a rare REIT showing AFFO/unit growth while issuing new units.

Utilities – Fortis (FTS.TO / FTS)

Among several great utilities in Canada, Fortis is the most boring and stable. Its impressive portfolio includes 10 regulated utility assets focused on energy transmission and distribution, mainly electric and gas. Fortis manages them with impeccable results quarter after quarter. Tight management limits operating costs growth, while FTS passes most of the inflation to customers. Dividend growth for 49 consecutive years, no hints of slowing down (dividend growth projected at 6%) prove FTS is an all-weather company.

The Canadian Rock Stars List is a selection of the safest dividend stocks in Canada. Which Canadian dividend stocks are the best? Those with the highest yield? Or those with the strongest dividend growth? Moose Markets presents you with the Canadian Dividend Rock Stars list: a selection of Canadian companies showing both income and growth. You guessed it; we prefer a combination of dividend growth and dividend yield. Here’s why…

Dividend Growth Investing = Safe Investing with More Money, Less Stress

“When you have confidence, you can have a lot of fun. And when you have fun, you can do amazing things.”

~Joe Namath

My entire portfolio is invested in dividend growth stocks. Some holdings act as “fixed income” as they offer a stable dividend yield and can weather market storms. Some others are my “growth equity” as they offer lower yield, but strong dividend growth and stock price appreciation potential. The combination of various dividend growers will create a balance where your portfolio will help you retire stress-free.

Strangely enough, even Vanguard (a pioneer in ETF investing) conducted its own studies on the recent market history and concluded that dividend growers are among the best-performing assets.

Performance of dividend-oriented equity stategies figure by Vanguard — Source: Vanguard

According to Vanguard’s study over this 20-year period, dividend growth stocks not only beat the market, but they did it with less volatility. While dividend growers usually provide investors with less volatility, you will still go through challenging periods where your favorite holdings will show red numbers. This is where you may start losing confidence and start wondering if it would be appropriate to cash your profits and protect your capital.

How the Canadian Rock Stars List Has been Built?

This Canadian dividend stocks list has been created with the help of our investment membership; Dividend Stocks Rock. When we left in our small RV to drive down to Costa Rica, we lived the adventure of a lifetime. It was a wonderful experience because we had a clear strategy. We knew where we were going, why we were doing it and we even had ways to handle more difficult days. The market will keep throwing you curveballs, so let’s make sure you don’t whiff on them.

At Dividend Stocks Rock, we also have a clear strategy: we focus on dividend growth stocks. We handpick companies showing a strong dividend triangle (e.g. revenue, earnings, and dividend growth potential) and make sure we understand their business model. It is sometimes frustrating to follow such a clear, but strict strategy. We sometimes must ignore great investing opportunities because they don’t fit in our model. Since our model is quite easy to understand and we know why we are using it, we never doubt ourselves.

We have created the Canadian Rock Stars list based on the combination of three metrics creating the dividend triangle. It’s a stronger list compared to the dividend aristocrats as we combine various metrics on top of dividend growth. By filtering the market to find Canadian stocks showing growing sales, growing earnings and growing dividends, we are convinced we can pick among the best Canadian dividend stocks, period. Enter your email below to get the list for free.

The Dividend Triangle is key to identifying safe Canadian stocks

With a smart combination of three metrics, you’ll be able to pick the best stocks from our list. You can quickly identify safe investments using the dividend triangle:

Revenues

A business is not a business without revenues. What is the difference between a company with growing revenues versus a company showing stagnating results? We are looking for companies with several growth vectors that will ensure consistent sales increases year after year. I’m a big believer in “offense is the best defense”. Whenever we are about to face a recession, I want to make sure I have companies that have shown past revenue growth. This is an excellent indicator that their business model is doing well, and they won’t enter a recession in a position of weakness.

Earnings

You cannot pay dividends if you don’t earn money. Then again, this is a very simple statement. Still, if earnings don’t grow strongly, there is no point of thinking that the dividend payment will increase indefinitely. Keep in mind that the EPS is based on a GAAP calculation. This is what makes EPS imperfect, as accounting principles are not aligned with cash flow. This means you are better off looking at the EPS trend over 3, 5, and 10 years. Use an adjusted EPS that discounts those one-time events revealed by the company to have a clear view of what is happening. Some companies could “play around” with earnings for a year or two, but you can’t create a trend out of thin air.

Dividends

Finally, dividend payments are the *obvious* backbone of any dividend growth investing strategy. But I don’t focus on the real dollar amounts or the yields because our real focus is solely on dividend growth. Dividend growers show confidence in their business model. This is a statement claiming that the company has enough money to both grow their business and reward shareholders at the same time. This also tells you that the business can pay off its financial obligations and invest in new projects (CAPEX). No management team will increase their dividend if they lack the cash to run their business.

What does a Strong Dividend Triangle Look Like?

It’s one thing to put those metrics into a stock screener, but it’s another to know what to do with them. The problem I face with a simple stock screener is that it will give me the 3year or 5year annualized growth, but I can’t see the trend.

Once I identify a company with a strong dividend triangle, my second step will be to look at the trend over the past 5 years for each metric. This period is long enough to show the current trend and highlight some jumps or drops that I must investigate. For example, I’ve pulled the dividend triangle of one my favorite stocks: National Bank:

As you can see, revenue, earnings, and dividend follow a similar trend. There was a decrease in earnings during the pandemic which led to a pause (forced by regulators) of dividend growth. Now that the pandemic is behind us, National Bank is back on the Rock Stars list with a strong dividend growth potential.

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Canadian Dividend Stock List Metrics

The Canadian Dividend Rock Stars list is comprised of only Canadian stocks that show a minimum revenue and earnings growth of 1% for the past five years. We could have asked for higher requirements, but considering the pandemic, we wanted to make sure we capture all dividend growers that deserve to be a Rock Star. While we didn’t include a minimum yield (dividend yield on this list goes from 0.29% all the way up to 15%), we required a minimum dividend growth rate of 5%. As you know, dividend growth = more money and less stress.

Building a list with only three metrics would not give you enough information for your research. For this reason, the Canadian Dividend Rock Stars list includes around 40 financial metrics. You can then use the filter you want to identify the perfect Canadian stock for your portfolio. The Rock Stars list also includes some of Refinitiv Starmine scores:

StarMine Credit Score

The current regional 1-100 percentile rank of a company’s 1-year default probability is based on the StarMine Combined Credit Risk Model. The Combined Model blends the Structural, SmartRatios, and Text Mining Credit Risk models into one final estimate of credit risk at the company level. Higher scores indicate companies that are less likely to go bankrupt, or default on their debt obligations, within the next 1-year period.

The combined credit score includes metrics from three different models:

Structural: Structural leverage, asset volatility, and asset drift.
SmartRatios: profitability, leverage, coverage, liquidity, and growth & stability
Text mining: transcripts, Reuters news, filings, research

As you can see, the credit score is a combination of the business finance structure, ratios, and how artificial intelligence analyzes the company’s news and transcripts. Pretty powerful metrics!

StarMine ESG Score

Refinitiv ESG Combined Score is an overall company score based on the reported information in the Environmental, Social, and Corporate Governance pillars (ESG Score) with an ESG Controversies overlay. The ESG score you find in the stock screener shows the combined scoring of the four factors mentioned above. Here is an example of how 3M (MMM) Controversies score has fallen because of their lawsuits in 2018-2019:

This scoring gives you a particularly good idea if the company is a good corporate citizen. Since MMM has a good reputation overall besides those legal incidents, the overall ESG score is positive:

The score you will find in the stock screener is rated from 1 (worst) to 100 (best).

StarMine Value Score

The current regional 1-100 percentile rank of the security is the overall Relative Value Model. Higher scores indicate stocks with the best value when considering all Relative Value model components that are relevant for the stock.

The relative valuation model will use a combination of 6 valuation metrics:

EV/Sales
EV/EBITDA
P/E
Price/Cash Flow
Price/Book
Dividend Yield

Download the Canadian Dividend Rock Stars List

This Canadian dividend stocks list will be updated quarterly. By subscribing to our newsletter, you will receive the updated version of the Rock Stars list quarterly. You can download the list by entering your email below.

Happy stock research!