Canadian Stocks Analysis

Buy List Stock for February 2024: Toromont Industries (TIH.TO)

My Canadian buy list stock for February 2024 is Toromont Industries (TIH.TO). It shows a very strong dividend triangle with double-digit 5-yr annualized growth for revenue, EPS, and dividends. Considering the massive infrastructure spending needs in Canada for the coming years, TIH should keep doing well.

We included Toromont in our Best Canadian Stocks to Buy in 2024, but it’s now a buy list stock because we feel it deserves a bit more attention and we wanted to provide more detail about it.

See our U.S. buy list stock pick for the month here.

Toromont Industries Business Model

Toromont Industries is a Canada-based company serving the specialized equipment and lifetime product support needs of thousands of customers in diverse industries from roadbuilding to mining, and telecommunications to food and beverage processing. It operates the Equipment Group and CIMCO segments.

Within the Equipment Group segment, TIH is the exclusive Caterpillar dealer for a contiguous geographical territory in Canada that covers Manitoba, Ontario, Quebec, Newfoundland, New Brunswick, Nova Scotia, Prince Edward Island, and most of Nunavut. Additionally, the Company is the MaK engine dealer for the Eastern Seaboard of the United States, from Maine to Virginia. The segment includes rental operations and a complementary material handling business. CIMCO segment is engaged in the design, engineering, fabrication, and installation of industrial and recreational refrigeration systems. Both segments offer comprehensive product support capabilities.

Want more stock ideas? Download out Top Stocks for 2024 booklet!

Investment Thesis for TIH.TO

TIH has over 50 years of history and has built a solid sales network with roughly 140 locations across Canada and the US. Combining this large distribution network with a well-known brand that is Caterpillar secures success that will last for decades. In addition to counting on the mining (20%) and construction (38%) sectors to grow organically, the company also buys smaller dealerships, such as Hewitt, acquired in 2017.

Considering the massive infrastructure spending needs in Canada in the coming years, Toromont is surely a player that could do well going forward. On top of this, the mining industry continues to bolster TIH’s order book given that commodity prices remain strong. It’s a shame that TIH exhibits such a low yield. The company has navigated the current uncertain economic conditions well by remaining committed to operating discipline. Now that governments want to invest in more infrastructure, TIH possesses a stronger dividend triangle showing robust growth.

TIH.TO Last Quarter and Recent Activities

Toromont Industries reported a total revenue increase of 9% for Q4’23 with Equipment Group revenue up 9% and CIMCO up +2%. EPS dropped 3.6% in the quarter as operating income fell due to property gain included in the prior year Q4 results. Excluding these gains, Toromont’s operating income grew 5% due to higher revenue but affected by lower gross margins. Bookings rose 49% compared to the same period in 2022. For the full year, revenue grew 12%, increasing in both groups and across all product and service categories compared to full year 2022 .EPS for 2023 increased 18% compared to 2022. The company also just announced an 11.6% dividend increase!

Potential Risks for Toromont Industries

When we think of the mining and construction sectors, there are two characteristics that come to mind: capital-intense and cyclical. While TIH enjoys a strong reputation and a steady source of income coming from its business model, the company still has to deal with economic cycles. The market expects TIH to showcase great performance in the coming years due to massive infrastructure investments from Canadian provinces. Let’s hope that the company doesn’t disappoint investors.

Revenue growth wasn’t impressive since the pandemic, but now it seems to be picking up in the latest quarters. TIH continues to face construction delays and inflationary pressure. What would happen if we entered a recession? We can see that backlog is now slowing down, signaling weaker results ahead. But so far, the dividend triangle stays incredibly strong.

Want more stock ideas? Download out Top Stocks for 2024 booklet!

TIH.TO Dividend Growth Perspective

Toromont has been a pioneer among the Canadian dividend growers with a dividend growth streak that has been around since 1989. It’s too bad that TIH exhibits such a low dividend yield even after management more than doubled its payouts over the past 5 years. Since TIH has a low payout ratio, shareholders can expect higher single digit increases over the long run. It followed up on a generous dividend increase of +11.4% in 2022 with another one of +10% in 2023 (from $0.39/share to $0.43/share), and yet another one, this time +11.6% in early 2024 (from $0.43/share to $0.48/share).

Final Thoughts on Toromont Industries

TIH’s yield of 1.5% won’t pay your bills, but it is growing by double-digit annually for one (+10.25%), three (+13.05%), and five years (15.45%).

Despite its very strong dividend triangle (5yr double-digit growth for revenue, EPS and dividends) and revenue growth improving of late, the stock price isn’t following the same growth trend. Last year, you had the chance to buy TIH at a PE of 20. Today, the forward PE is 18.80! Could be a good entry point if you want to add industrials stock to your portfolio.

Buy List Stock for January 2024: Stella-Jones (SJ.TO)

A new Canadian buy list stock on my list for January 2024 is Stella-Jones (SJ.TO), a special beast in the materials sector. While its business model revolves around lumber prices, most of its revenue comes from products essential to infrastructure projects: utility poles and railway ties. SJ.TO’s business is less affected by price fluctuations than if it was all about residential lumber. Find out more about why I bought shares of SJ.TO in December 2023.

See my U.S. buy list stock pick for this month here.

Stella-Jones Business Model

Stella-Jones Inc. is a Canada-based producer of pressure-treated wood products. It supplies various electrical utilities and telecommunication companies with wood utility poles and North America’s short line and commercial railroad operators with railway ties and timbers. SJ.TO also provides industrial products including wood for railway bridges and crossings, marine and foundation pilings, construction timbers, and coal tar-based products.

Additionally, the Company manufactures and distributes premium treated residential lumber and accessories to Canadian and American retailers for outdoor applications, with a significant portion of the business devoted to servicing Canadian customers through its national manufacturing and distribution network. The Company operates 45 wood treating plants and a coal tar distillery across Canada and the United States, complemented by a procurement and distribution network.

Discover other great picks in our 2024 Top Stocks booklet. Download it now.

Investment Thesis for SJ.TO

With utilities and railroads as its main customers, Stella-Jones will keep getting sizable orders and getting paid. SJ.TO’s revenue surged between 2017 and 2021 because demand for its products was strong from both sides of the border. Business has slowed since the second half of 2021, but SJ.TO continues to grow. In 2023, it reported impressive numbers as demand for infrastructure products is surging. With 15 facilities in Canada and 25 on U.S. soil, Stella-Jones can deliver its products promptly.

The company has proven to be a defensive pick during the pandemic. The “lumber COVID-hype” is over, but SJ.TO remains a solid business benefiting from multiple growth vectors. While residential construction may slow down due to higher interest rates, the need for more infrastructure and major projects continue to drive sales higher.

A portion of the company’s growth in recent quarters was fueled by recent acquisitions and margin expansion. Management mentioned it was seeking acquisition targets – we like that!

SJ.TO Last Quarter and Recent Activities

Recently, Stella-Jones impressed the market and analysts with a killer quarter; revenue up 13%, and EPS up 79%! Excluding the acquisition of utility pole manufacturer Texas Electric and the positive currency impact, sales were still up 7%. Despite understandable lower sales for residential lumber, the company saw an organic growth of 17% from its infrastructure-related businesses. Utility sales were up 32.3%, Railway ties +15.6%. Earnings jumped on expanding margins in SJ.TO infrastructure-related businesses, helped by businesses acquired in late 2022 and 2023.

Potential Risks for Stella-Jones

SJ.TO is highly dependent on macroeconomic factors. Although the company enjoys a stable replacement business for railway ties and utility poles, those segments do not always grow at a fast pace. The residential lumber division depends on the health of the housing market. Fueled by strong results, SJ.TO’s stock price skyrocketed in 2023. It’s always an additional risk to buy when a stock almost doubles in value.

Going forward, Stella-Jones will remain dependent on lumber pricing. If demand is strong, it will seem to be a robust business. Like any commodity producer, it experiences uptrends and downtrends. This seems to be a good deal with a forward PE ratio below 14.

Discover other great picks in our 2024 Top Stocks booklet. Download it now.

SJ.TO Dividend Growth Perspective

Another reason I chose SJ.TO as a buy list stock is that it’s dividend has almost doubled over the past 5 years, yet the company exhibits a very low payout ratio. Unfortunately, as is the case with many low-yielding stocks, the combination of a low payout ratio and low yield makes the DDM calculation inadequate. Going forward, shareholders can expect mid single-digit dividend growth. The latest dividend increases were more than generous (going from $0.15/share to $0.18/share in 2021 and then to $0.20/share in 2022, and now to $0.23/share in 2023), but for planning and valuation purposes, we would rather stick with a more conservative scenario.

Final Thoughts on Stella-Jones

In 2023, the company reported impressive numbers with demand for infrastructure products surging; despite a surging stock price in 2023, it still trades at an attractive forward PE of 14; infrastructure and major projects should continue to drive sales higher; the company is on the lookout for more acquisition targets. So, lots of growth vectors on its dashboard.

What’s not to like? Stella-Jones is fully deserving of a spot as a buy list stock for many dividend growth investors.

Buy List Stock – December 2023: Brookfield Corporation (BN.TO)

Still number one buy list stock on the Canadian market for December is Brookfield Corporation (BN.TO / BN). The engine behind the Brookfield family of businesses, BN is a core holding, one that investors can hold for a long time. Have a look.

You can have a look at my buy list stock pick of the month on the U.S. market.

BN.TO Business Model

Brookfield Corporation is an alternative asset manager, meaning that its assets are not liquid like conventional assets such as stocks, bonds, cash, ETFs. It owns and operates these real assets with a focus on compounding capital over the long term to earn attractive total returns for its shareholders. Managing alternative assets requires a high level of expertise and patience.

BN is the parent company of the other Brookfield companies; through them BN focuses on long-life, high-quality assets including: Renewable Power & Transition assets in hydro, wind, solar, distributed energy and sustainable solutions; Infrastructure assets in transport, data, utilities and midstream sector; Asset Management, managing funds coming from pension plans and other investors; Private Equity, businesses that provide essential industrial, infrastructure, and business services; Real Estate with a diversified portfolio across many industries and spread across five continents; Credit, through its majority interest in Oaktree; and Insurance Solutions across the life, annuity, and property and casualty industries.

Investment Thesis for Brookfield Corporation

The company has access to billions of dollars in liquidity to finance its projects and has built impressive expertise in various industries. BN is present in countries that show potential for high growth for years to come. Its diversified businesses are a solid source of permanent capital. Over the last few years, BN has seen an increase in both the number and size of average client commitments. BN is well-positioned to expand its private fund investor base in Europe and parts of Asia.

Brookfield Corporation doesn’t only do the asset-light manager’s job consisting of strategy and earning fees on assets under management (AUM); it also contributes with its own assets. Therefore, it benefits from its own strategies to recycle its assets; in other words, it can sell assets it considers to be at a high value and reallocate the proceeds into new projects or undervalued assets. It’s the classic “buy low, sell high” concept.

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

BN.TO Last Quarter and Recent Activities

Brookfield Corporation reported decent results for its most recent quarter with revenue increasing 5%, but distributable earnings per share remained flat. Insurance solutions distributable earnings were up 14% as insurance assets increased to ~$50B. The average investment portfolio yield was 5.5%, about 200 basis points higher than the average cost of capital. It continues to track towards reaching $800M of annualized earnings by the end of 2023.

Evolution of Brookfield Corporation revenues over 10 years. — Steady revenue growth for Brookfield Corporation over 10 years.

Operating businesses earnings declined by 8% but funds from operations were supported by a stronger performance from the renewables and infrastructure segments. The asset management segment was up 13% and BN ended the quarter with $120B to invest.

The bigger news about Brookfield of late was its offer to BN shareholders to exchange their shares for shares of Brookfield Reinsurance (BNRE), one for one. There was no share dilution, and the company did it to improve equity base and market capitalization of BNRE.

Potential Risks for BN.TO

BN’s growth depends on investors’ confidence in long-term projects. When panic arises, it becomes difficult for companies like BN to increase their AUM. We had another example of this phenomenon in 2022, when the stock price dropped along with the market.

BN is well-managed and has the ability to navigate the current crisis. Investors must simply remain patient. Its operational complexity can leave many investors wondering how money is managed within the business; it’s easy to get lost in the pile of financial statements throughout the multiple companies and the many stock classes.

Contrary to BAM, which is asset-light, BN’s success relies on management’s ability to manage its assets; in short, making money selling at the right time, and reallocating capital into the right assets at the right time. This adds to the complexity of its business model and requires a larger cash reserve.

Want to find more great stock ideas? Download our Rock Stars list, updated monthly.

BN.TO Dividend Growth Perspective

Following the spin-off of BAM, it’s clear that BN is a low-yield, high-growth stock. The company kept a low yield by paying a $0.07/share dividend. We expect this dividend to increase each year. However, if you’re looking for a more generous yield, BAM is the better option.

Line graph showing BN.TO's dividend payments over 10 years — BN.TO: a low yield high growth stock after Following the spin off of BAM

BN has the advantage of owning a stake in various assets across the Brookfield family, while BAM has the advantage of simply managing the money and earning revenue on a fee charged on the assets under management.

Final Thoughts on Brookfield Corporation

It’s virtually impossible to buy a piece of a bridge or a railroad. This is where Brookfield comes into play as investing in Brookfield Corp is like investing in your own “alternative asset fund”.

As an asset manager, you can expect BN.TO to go through some difficult times with the higher interest rates and possible recession. However, its depth of assets, expertise, and geographic distribution make it a worthwhile buy list stock for investors seeking long-term dividend growth.

Investing in alternative assets is a great way to diversify a portfolio. Usually, the investment returns on such investments are decided by what’s happening on the stock market. You can expect them to generate about 5-7% above inflation over long periods of time. Interest in alternative assets is increasing, especially for institutional investors.

See also the list of Canadian Dividend Aristocrats for other great stock pick ideas.

Most Popular Canadian Stocks at DSR – Top 5

Why look at the 5 most popular Canadian stocks with members of DSR Pro? To get ideas! You have your own process to select stocks, but seeing other investor’s favorites can open the door for new opportunities. It’s a great starting point for your research. I also do it out of curiosity 😉.

I surveyed the DSR database to pull out the 25 most popular Canadian and U.S. stocks, not looking at individual portfolios, but rather the number of times each stock appears across the 2,289 DSR PRO members’ portfolios. This is not based on value; I don’t know how much is invested in each stock.

This week, we have a fairly detailed look at the top 5 Canadian stocks, what I like and don’t like about each one and the roles they can play in a portfolio. We’ll see the remaining 20 in a later article.

5 U.S. stocks most popular with DSR Pro members

Never let a list like this replace your investment process. Don’t load up on these stocks without the conviction that they fit with your strategy. It’s a good list to start a research project, but that’s just the beginning. There’s more digging required before pulling the trigger…

Sign up for our upcoming webinar: Most Popular Dividend Stocks – Best Protection and Better Returns

TELUS (T.TO / TU)

1^st place – 1451 members

Again, this year, Telus is the champ. It’s my favorite telecom. Most of its revenue comes from its wireless business. I like the wireless industry in Canada; there’s still organic growth potential and the development of 5G will enable additional growth vectors. I like how Telus diversified its business through artificial intelligence, healthcare, and agriculture, instead of going after more media business, Telus uses technology to catapult its business, which could be a hit or a miss.

What’s not to like? DEBT! Telecoms rack-up debt faster than teenagers eat burgers! Right now, the narrative doesn’t fit with the numbers. For 10 years, Telus had a clear plan: get as much cheap debt as possible for investments (CAPEX) to fuel stronger generation of cash flows from operations. Ten years later, it’s time to show that stronger cash flow and smaller CAPEX. It’s improving, but not fast enough. I want to see Telus’s free cash flow cover the dividend payment. Management seems confident though; it raised the dividend again in November.

Telus pleases income-seeking investors with its generous yield, and also attracts growth investors with its technology growth segments. A great balance of growth and “sleep well at night” ingredients. A good fit for both “retirement” and “growth” portfolios. No wonder it’s one of the most popular Canadians stocks.

TD BANK (TD.TO / TD)

2^nd place (up from 5^th) – 1279 members

The largest Canadian bank in terms of assets, TD operates a classic business model mostly around savings & loans. Everybody likes Canadian banks, right? When you pick among the top 2 largest Canadian banks you can’t go wrong.

I like TD’s US exposure for additional growth (usually, the U.S. economy grows faster than the Canadian) and its 13.5% ownership of Charles Schwab (SCHW). I also appreciate TD’s focus on classic banking activities with some wealth management for good measure. Nothing eccentric. You can count on its solid balance sheet to keep up with its dividend growth policy.

There isn’t much to dislike about TD. I rank it third behind Royal Bank and National Bank only because of its larger exposure to the loan market. A more classic bank, TD takes fewer risks in the stock market, but more for mortgages and commercial loans. With high interest rates and possibly a slowing economy, all eyes on its provisions for credit losses. While a great source of growth, TD’s presence in the U.S. can expose it to a more volatile economic environment. When it comes to banks, it’s the wild west in the U.S.

TD is another sleep-well-at-night stock. Interestingly, you’ll get a fair share of growth at the same time!

Sign up for our upcoming webinar: Most Popular Dividend Stocks – Best Protection and Better Returns

FORTIS (FTS.TO / FTS)

3^rd place (up from 7^th) – 1223 members

A big jump for Fortis, which fully merits a spot in the most popular Canadian stocks. I increased my position in this solid utility after the Algonquin debacle. Fortis is a classic utility offering transmission and distribution of electricity and natural gas to its customers. It’s virtually 100% regulated, leading to stability and predictable cash flow. This sustainable cash flow has resulted four decades of dividend payments!

Fortis invested aggressively over the past few years resulting in strong growth from its core business. You can expect revenues to keep growing as expansion continues. I like its goal of increasing its exposure to renewable energy from 2% of its assets in 2019 to 7% in 2035. In its five-year capital investment plan of ~$20B up to 2026, only 33% is financed through debt, while 61% comes from cash from their own operations.

Fortis’s capital-intensive operations make it sensitive to interest rates. Many income-seeking investors left equities to go to bonds and GICs. Also, with most of its assets regulated, it must get regulatory approval for each rate increase to its customers.

Fortis remains a utility; don’t expect astronomical growth. It’s definitely a defensive stock you can count on no matter what the economy’s like. It will keep paying a decent yield with a mid-single digit dividend growth rate.

ENBRIDGE (ENB.TO / ENB)

4^th place (down from 2^nd) – 1184 members

Income-seeking investors want to keep Enbridge and its 7%+ yield. I get that, but I got rid of my shares this year. ENB isn’t a bad company, but it lacks growth vectors, which doesn’t fit with my dividend growth strategy.

Like a toll road, Enbridge collects money day and night from oil & gas companies that use its “roads”, i.e., “pipelines”. We need oil & gas; Enbridge provides an impressive network of pipelines covering North America. Pipelines usually enjoy long-term contracts, sheltering them from short-term commodity price movements. ENB is diversifying through acquisitions in the natural gas business. It makes sense to lower exposure to crude oil. With 28 consecutive years with a dividend increase, you can rely on Enbridge to honor its shareholders’ investment.

What’s not to like? Legal battles and debt! Building, maintaining, and replacing pipelines has become a toxic topic. Politicians and regulators are cautious about projects related to oil & gas transportation; they have environmental impacts and are increasingly unpopular with the public. So, more legal battles and fees, and increased likelihood that projects go sideways. This explains why Enbridge offers such a generous yield.

I like the move into the natural gas business, but not piling on more debt to do so. At one point, Enbridge has to pay down its debts. I’ll keep an eye on ENB’s dividend growth. It has slowed down to 3% per year after a generous run including double-digit increases. Does it make sense for management to increase it every year?

Truly the definition of a deluxe bond, Enbridge provides reliable income, but don’t expect much capital growth. Continue to monitor this one quarterly.

BCE (BCE.TO / BCE)

5^th place (down from 4^th) – 1175 member

Bell is a classic telecom company that combines wireline, wireless, and media. Most of its revenue comes from wireless and wireline business and 13-14% from Media. BCE’s yield is its most appealing feature. With interest rates on the rise, BCE still beats most GIC’s with a 7%+ yield. That generous payout comes with steady increases since 2009. Will it continue forever? That’s another story.

As BCE has limited competition and high barriers to entry. With its range of products, BCE can easily increase revenues generated from different customers. 5G should be a tailwind for years to come. BCE enjoys a relatively stable business generating predictable cash flows.

However, it could become another AT&T (T). T pleased investors for years until things fell apart and ended up another high yielder nightmare for investors. With high interest rates, BCE’s debt burden could hinder its ability to increase dividends. Always monitor the dividend growth and start worrying if the trend slows down. Finally, if 5G doesn’t generate the expected cash flow, I wonder where BCE will find its growth.

This stock is a deluxe bond crafted for income-seeking investors. As long as the company shows increasing cash flow from operations and reduces its CAPEX to generate sufficient cash flow to cover the dividend, you’re in good hands.

Buy List stock for November 2023: TD Bank (TD.TO / TD)

A stock that remains on my buy list for November is Toronto-Dominion Bank (TD.TO/TD). I look at TD as a core holding, because it meets all my investment requirements and it’s a stock that I would hold for a long time, while reviewing it quarterly for good measure. Here’ why.

TD has a very lean structure that plays a significant role in its expansion. It also has a solid dividend growth history, and management recently rewarded shareholders with several dividend increases. Plus, it has a significant presence in the US compared to other Canadian banks.

TD.TO Business Model

Toronto-Dominion Bank operates as a bank in North America. TD’s segments include Canadian Personal and Commercial Banking; U.S. Retail; Wealth Management and Insurance; and Wholesale Banking.

Canadian Personal and Commercial Banking offers a full range of financial products and services to approximately 15 million customers in Canada.
S. Retail offers a range of financial products and services under the brand TD Bank, America’s Most Convenient Bank. It also TD Auto Finance U.S., TD Wealth (U.S.) business.
Wealth Management and Insurance provides wealth solutions and insurance protection to approximately six million customers in Canada.
Wholesale Banking operates under the brand name TD Securities and offers a range of capital markets and corporate and investment banking services to corporate, government, and institutional clients.

Want more great stock ideas? Download our Rock Star list, updated monthly!

TD Investment Thesis

Over the years, TD has increased its retail focus, driven by lower-risk businesses with stable, consistent earnings. The bank enjoys the largest or second largest market share for most key products in the Canadian retail segment. TD keeps things clean and simple as the bulk of its income comes from personal and commercial banking. It has sizeable exposure in major cities like Toronto, Vancouver, Edmonton, and Calgary, combined with a strong presence in the US.

With about a third of its business coming from the U.S., TD is the most “American” bank you’ll find in Canada. If you are looking for an investment in a straightforward bank, TD should be your pick as increasing retail focus, large market share in Canadian banking, and U.S. expansion are key growth enablers for TD Bank. The 13% stake in Charles Schwab (SCHW) is another interesting growth vector.

TD.TO Last Quarter and Recent Activities

In August, TD reported a disappointing quarter with net income down 2% and EPS down 5%, but it could have been worse. TD’s results were affected by amortization charges, acquisition & integration costs, the termination fee of the acquisition of First Horizon, and strategy costs to reduce the interest rate impact on their balance sheet.

We do like a proactive bank that takes steps now instead of doing what US regional banks did a few months ago, which was nothing! Canadian Personal and Commercial Banking net income was down 1%, mainly due to higher provisions for credit losses (PCLs). US retail was down 9%, hurt by higher PCLs and termination fees on the acquisition. Wealth Management & Insurance was down 12% while Wholesale was flat. TD also announced a 5% share buyback program.

There weren’t any news about TD in October, so we are patiently waiting for the end of November to look at their earnings!

Potential Risks for TD Bank

The housing market has been a concern since 2012. However, TD seems to be managing its loan book wisely and the Canadian economy has been remarkably resilient as well. A higher insured mortgage level in the prairies seems adequate while TD continues to ride the ever-growing downtown Toronto housing market tailwind. As interest rates rise, TD’s loan book will profitably generate stronger income. However, this also comes with increased risk of defaults and slow volume growth.

TD must identify other growth vectors because consumers can’t borrow continuously, even more so with higher interest rates slowing down the economy. It is important to follow the bank’s provision for credit losses, which have risen in the latest quarters. So far, everything is under control, but a recession still looms. In early 2023, TD paid $1.6B in a settlement related to a Ponzi scheme (Stanford Litigation Settlement). While this is treated as a one-time event, it still affected their quarterly earnings report.

Get other stock ideas for all sectors. Download our Rock Star list, updated monthly!

TD.TO Dividend Growth Perspective

TD is a Canadian dividend aristocrat (which allows them a “pause” in their dividend increase streak). TD shareholders were lucky enough to enjoy a dividend increase in early 2020 (+6.8%), right before regulators forced a break in dividend growth. In 2021, the bank rewarded investors with a 12.7% dividend increase. It returned with a more regular increase in 2022 (+7.8%). Going forward, you can expect a mid-single-digit dividend increase as payout ratios are quite low and TD is well capitalized.

For more about dividend aristocrats and the paused dividend growth for Canadian banks, listen to my podcast.

Graph showing steadily increasing dividend payments for TD Bank over years, except when regulators forced pause during pandemic — Steady dividend growth except when regulators imposed a pause

Final Thoughts on this Buy List Stock

Its legal settlement early this year and the general economic landscape may have seemingly taken some of lustre away from TD, but it has a lot on offer for dividend-growth investors. A lean structure conducive to expansion; growth potential through its focus on Canadian retail banking, its US exposure, and its stake in Charles Schwab (SCHW); and dividend growth.

We have TD in the DSR retirement and 500K portfolio models, for both Canada and the US. A stock to consider if you’re looking for holdings in the financial sector.

Market-Beating High Yield Canadian Stocks

High yield Canadian stocks that beat the market? Yes, here are some examples. After writing so much about the virtues of low-yield, high-growth stocks, it’s time to talk a bit about high-yield stocks. To be fair, they’re not all bad investments. Some provide a fairly sustainable source of high income for investors, and some even manage to beat the market!

High yield Canadian stocks that keep giving

I searched for high yield companies that also matched the overall stock market performance of late. On October 7, the iShares S&P/TSX 60 ETF (XIU.TO) 5-year total return (capital + dividends) was about 52% and the SPDR S&P 500 ETF Trust (SPY) was about 74%. So, I search for all companies generating a total 5-year return of at least 50% and a yield of at least 6%; this returned 101 stocks.

Here are three of the Canadian stocks that provided high yields while matching or outperforming the market for total return over the last 5 years. Caution: there’s no guarantee that they will keep performing that well in the future, especially with a long-predicted recession looming. As always, do your due diligence when considering any investment.

Want a portfolio that provides enough income in retirement? Download our Dividend Income for Life Guide!

Capital Power (CPX.TO) 6.03%, +89.62%

Not long ago, Capital Power was a darling as its stock price defied gravity while other utilities were doing down. While the market has some reservations about utilities due to their sensitivity to interest rates, CPX continues to show a relatively strong dividend triangle. Management increased the dividend from $0.58/share to $0.615/share. A 6% increase in the middle of an “interest rate crisis” is bold and shows strong confidence.

CPX is dependent on Alberta’s economy, where it generates 56% of its electricity and 62% of its revenues. That is a concern. It means its share price tends to move up and down with the oil market. As a capital-intensive business, CPX must invest heavily and continually to generate cash flow. The market might not like additional debt to fund projects in the coming years. With interest rates rising, this debt could become a burden and obtaining liquidity from capital markets might get more difficult. Finally, weather variations can affect results as seen recently when a warm winter reduced AFFO.

Considering its wind energy projects and the robust economy in Alberta, CPX expects to increase its dividend by 6% through to 2025, welcomed news for income seeking investors. Through its successful transformation into a more diversified utility company, CPX is earning its place among robust Canadian utilities such as Fortis, Emera, and the Brookfield family.

Enbridge (ENB.TO), 7.90% yield, +50.20%

I smiled at the 50% total return for Enbridge as I remembered buying it in 2017 and selling at the beginning of 2023 with a good profit. ENB is a good example of a deluxe bond that could eventually evolve into a dividend trap!

With inflation and higher interest expenses, Enbridge faces higher operating costs. This could seriously jeopardize growth because ENB can’t find any growth vectors without getting into more debt. In September 2023 ENB announced it was taking on more debt and issuing shares to acquire a gas transmission business for $19B CAD. I like the predictable cash flow it’ll bring, but I’m concerned about the ever-increasing debt level.

Total long-term debt stands at around $80B, up from $67B in 2017; it’s time to see some debt repayments. ENB’s interest expenses are continuing to increase, and it won’t end any time soon. Since building and maintaining pipelines requires significant amounts of capital, ENB may find itself in a position where cash is short.

Enbridge operates high-quality assets, with almost impenetrable barriers to entry. There’s no doubt the business model is solid. The problem is the rising debt level. ENB won’t be able to rely on its pipelines forever; many projects were revised or paused by regulators over the past few years. TRP’s latest Keystone pipeline spills remind us of the environmental risks of this industry.

ENB has paid dividends for 65 years, with 28 consecutive years with a dividend increase. Further dividend growth is expected at around 3%. Management aims to distribute 65% of its distributable cash flow, keeping enough for CAPEX. Consult their latest quarterly presentation for their payout ratio calculation.

See how Mike’s dividend growth investment strategy can secure your retirement. Download our Dividend Income for Life Guide!

Labrador Iron Ore Royalty Corp (LIF.TO) 8.89% yield, +101.4%

LIF receives a 7% gross overriding royalty on iron ore products sold by Iron Ore Company of Canada, a producer and exporter of iron ore pellets and high-grade concentrate. The mine enjoys a high-quality source of products with sufficient inventory to support future expansion. IOC is well-positioned strategically due to the high quality of the iron ore and its ability to produce higher margin pellets.

LIF’s business model depends on factors that are barely in its control; commodity prices, unions, and demand that can affect production of the underlying business. Since we only have data from 2010, we have yet to see how LIF will navigate a recession. However, we can see the effect of an iron spot price decline, and how quickly it happens, as it did in 2022.

The company must keep a large cash reserve for additional CAPEX. After all, the royalty-based business is only good if you have high-quality assets. The narrative has been quite enticing as LIF surfed on the highest iron prices in its history, and demand seemed stable. Things took a turn, and both the stock price and dividend dropped.

LIF pays a variable dividend: base payment of $0.25/share quarterly + special dividend based on royalties received. You can’t expect a stable dividend, but a yield usually in the high single-digit to double-digit! The generous yield is inflated by the royalty payments.

When iron ore trades at a high price, LIF seems the most generous stock in town. The opposite is also true. Demand for iron ore will come and go, affecting its price, and, therefore, your dividends. It’s not a bad investment if you’re able to stomach the price and dividend fluctuations.

Last thoughts about high yield Canadian stocks

As you know, I prefer higher total return over high yield. Overall, low yield high growth stocks provide higher total return, so I favor them for my dividend growth investment strategy. However, a few solid higher yield companies that match or exceed the market can be good assets to have in a portfolio. Be sure to monitor them quarterly though, to ensure they don’t become dividend traps!