Dividend Investing

Canadian REITs Beginner’s Guide

Want exposure to real estate without the hassle of fixing leaky faucets or chasing tenants for rent? That’s where Canadian REITs come in. These high-yield investments offer steady income, inflation protection, and real estate exposure — minus the landlord stress.

Thanks to their unique tax structure, REITs are designed to return most of their income to shareholders, making them ideal for income-seeking investors.

What Are REITs & Why They Matter?

REITs are not only popular because they distribute generous dividends, but also because they’re easy to understand. Investors can picture an apartment building or an office tower and tenants paying their rent monthly. Investors are willing to purchase units of those businesses in exchange for the income and peace of mind.

The concept of being a landlord and having tenants is comparatively simple to understand. The company owns and manages real estate and receives rental income from properties such as apartment complexes, hospitals, office buildings, timber land, warehouses, hotels, and shopping malls.

Most REITs are equity REITs. They must invest most of their assets (75%) into real estate (properties) or cash equivalents. In other words, they cannot produce goods or provide services with their assets. They must generate 75% of their income from those real estate assets in the form of rent, interest on mortgages, or sales of properties.

REITs must also pay a minimum of 90% of their taxable income as dividends to shareholders each year. Therefore, the classic earnings per share (EPS) and dividend payout ratios don’t gauge an REIT’s health.

3 Types of REITs: Equity, Mortgage, and Hybrid

Equity REITs

Equity REITs own and invest in property. They may own a diversified set of properties, and they generate income primarily in rent payments from leasing their properties.

Mortgage REITs

Mortgage REITs, or mREITs for short, finance property. They generate income from interest on loans they make to finance property.

Hybrid REITs

Hybrid REITs do a bit of both, as they own property and finance property.

In general, REITs offer great investment opportunities by their nature. A growing economy leads to growing needs for properties. REITs can grow organically as the population requires more industrial facilities, healthcare centers, offices, and apartments.

Sub-Sector (Industry)

REIT – Diversified	REIT – Mortgage	REIT – Specialty
REIT – Healthcare Facilities	REIT – Office	Real Estate – Development
REIT – Hotel & Motel	REIT – Residential	Real Estate – Diversified
REIT – Industrial	REIT – Retail	Real Estate Services

The Hidden Strengths of REITs

REITs are unique as they distribute most of their income. In fact, they exist to pay generous distributions. This makes them one of the retirees’ favorite sectors!

Therefore, it’s easy to understand how most offer a relatively high dividend income. This is one of the rare sectors where you can find “relatively safe” stocks paying 5%, 6%, or even 7%+. Investors must be careful not to get too greedy, though. We have seen several REITs cut their dividends due to poor management or economic downturns.

REITs usually bring stability to a portfolio. It’s a great sector to start with if you want additional income. Real estate brings significant diversification to your portfolio. Research has proved that REITs are not directly correlated to stock market movements over the longer term.

Finally, since most of them operate with escalator contracts, they offer great protection against inflation. Many income trusts include yearly rent increases in their leases to ensure rental income matches inflation. Some REITs also use Triple-Net leases, where the tenants is responsible for insurance, taxes, and maintenance costs, thus reducing the REITs’ expenses (and risk of unexpected charges!).

REITs: The Risks You Need to Know

One of the REIT sectors’ favorite ways to finance their new projects is to issue more units. Therefore, if a company purchases a property generating $20M per year but needs to issue more units to finance the purchase, you must look at the net outcome for unitholders. If the FFO per share drops, this is not necessarily good for you as it will affect the REIT’s ability to increase its dividend in the future.

Another downside related to their business model is their lack of flexibility. We have often seen REITs try to shift their focus from one industry to another. In most cases (H&R, RioCan, Boardwalk, and Cominar, to name a few), the trajectory change comes with a dividend cut and a loss in value for unit holders. A REIT wishing to get rid of its shopping malls to buy more industrial properties will likely have to sell properties at a lower price and pay a hefty price to buy more appealing assets.

Finally, don’t make the mistake of thinking REITs are safer than other sectors. They are companies facing challenges while benefiting from tailwinds. While you may argue that an apartment building can’t go anywhere, I would answer that if you have one hundred empty apartments due to an oversupply in a neighborhood, your money will also go nowhere.

The REIT sector is best for income investors.

Target sector weight: For income-seeking investors, you can aim at 15% to 30% (if you invest in various industries). For growth investors, REITs could represent a 5%-15% portion of your portfolio.

Protect Your Portfolio: Canadian Rock Stars List

REITs can provide good income, but they are all part of the same sector. You need more diversification for your portfolio to be fully protected of market events.

I have created a list showing about 300 companies with growing revenue, earnings per share (EPS), and dividend growth trends. Focusing on trends rather than numbers gives you a better perspective on past, present, and future growth.

The Dividend Rock Stars List is the best place to start your stock research. Get it for free by entering your name and email below.

How to Analyze a REIT (The 3 Must-Know Metrics)

While REITs are among a short list of sectors that are perfect for retirees or other income-seeking investors, it is important to understand that they cannot be analyzed using the same metrics as other sectors.

Funds From Operations (FFO/AFFO)

The Funds from Operations (FFO) and Adjusted Funds from Operations (AFFO) are probably the most valuable tools for analyzing a REIT’s financial performance. Those two metrics replace the earnings and adjusted earnings for a regular stock. While those are different metrics, it’s all about cash flow and the REITs’ ability to sustain their dividend payments.

Fortunately, we can find those metrics inside each REIT’s quarterly report and subsequent press release. It’s important to follow not only the total FFO/AFFO, but also the FFO/AFFO per share (or unit of ownership) rather than earnings per share (EPS) or adjusted earnings per share.

FFO = Earnings + Depreciation (Amortization) – Proceeds from Property Sales

AFFO = Earnings + Depreciation (Amortization) – Proceeds from Property Sales – Capital Expenditures

Loan to Value Ratio (LTV)

The loan-to-value ratio (LTV) is a great tool for analyzing the REIT’s future ability to raise low-cost capital. The LTV is easy to calculate from the financial statement, as you only need 2 measures of data:

LTV = Mortgage Amount / FMV of properties

You don’t want to invest in a REIT showing a high LTV. This means that their credit rating may be at risk and the price for future debt will be higher. In other words, it could mean less money for future dividends.

Net Asset Value (NAV)

The last metric to follow for REITs is Net Asset Value (NAV), which (usually shown in units) is equivalent to a price-to-book ratio.

NAV = Total Property Fair Market Value – Liabilities

The idea is to compare a few REITs from your list against one another. This is how you should be able to find the ones with the best metrics. A lower than industry NAV is either a riskier play or a value play. The AFFO and LTV will tell you which one it is.

Avoid This Common REIT Mistake

REITs are required to distribute at least 90% of their taxable income to investors, which makes traditional payout ratios less useful. The metrics you’re looking for is the Funds From Operations (FFO) and the Adjusted Funds From Operations (AFFO) payout ratios.

Funds from Operations Payout Ratio

Formula: DIVIDEND PER SHARE (DPS) / (ADJUSTED) FUNDS FROM OPERATIONS (FFO) PER SHARE

Because of REITs’ tax structure, adjusted funds from operations (AFFO or FFO) is a more precise metric. Like the payout and cash payout ratio, it’s always preferable to look at a long-term trend of the metrics over several years.

Pros: Similar to the cash payout ratio, this ratio clearly shows how much cash the company has to pay dividends.

Cons: In most cases, you can’t calculate the FFO payout ratio yourself or find it on general finance websites. You must rely on the company’s information found in their quarterly earnings reports. It requires additional time to establish a trend over several years.

How to Value a REIT Like a Pro

Valuing a REIT is like valuing any stock.

I generally use the Dividend Discount Model (DDM) to value them. However, some of the other REIT-specific metrics we’ve seen are also very valuable when valuing REITs.

Net Asset Value (NAV) is another estimate of intrinsic value. It’s the estimated market value of the portfolio of properties. One way to evaluate this value is to divide the current net income from the properties by a capitalization rate that’s fair for those types of properties. NAV can potentially understate the value of the properties because it might not capture value appreciation of properties during strong growth periods in the market. Compare the NAV to the price of the REIT.

We’ve seen that Funds from Operations (FFO) are far more important than net income for a REIT. Due to the tax structure of REITs, earnings mean almost nothing; instead, it’s all about cash flow. When calculating net income, depreciation is subtracted from revenues; depreciation is a non-cash item and might not represent a true change in the value of the company’s assets. FFO adds depreciation back to net income, providing a better idea of the cash income for a REIT.

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

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

REIT advantages and disadvantages

Before presenting some of our picks for Canadian REITs, let’s sum up the advantages and disadvantages of REITs.

Advantages:

Usually have above-average dividend yields.
Are good protectors from inflation. Property values and rents increase over time if inflation occurs, but fixed-interest on the debt that finances the properties doesn’t.
Real estate, if managed conservatively, can be a reliable investment for income and in times of recession, assuming tenants pay their rent.

Disadvantages:

Often have lower dividend growth than companies in other sectors.
Generally use debt to add to their property portfolio, but their larger debt loads is used for conservative, appreciating assets.
Since they have to pay most of their income as dividends, they have little downside protection from recessions. They might have to trim the dividend if their cash flow dips below their distribution levels. There are, however, some REITs that have good track records of consistent dividend growth, despite market downturns.

For example, Granite REIT has consistently used conservative debt and escalator leases to grow dividends. Conversely, Northwest Healthcare REIT stumbled due to poor balance sheet management, overreliance on floating rate debt, and deteriorating cash flow, leading to a dividend cut in 2023.

GRT.UN.TO vs NHW.UN.TO 5-Year Dividend Triangle.

REIT Summary or Quick Reference Table

✅ REIT Cheat Sheet
Best For: Income-focused investors, retirees.
Top Metrics: FFO/AFFO, NAV, LTV.
Risks: Overconcentration, debt levels, and tenant health.
Watch For: Dividend sustainability and inflation-adjusted leases.

Top REIT Picks

Below are some of my favorite REITs in Canada, side-by-side. You can also find a complete description for each in this article.

Our top 3 favorite monthly REITs using the Stock Comparison Tool at Dividend Stocks Rock.

Get More Stock Ideas: The Canadian Rock Stars List

REITs can anchor your income portfolio — but they’re just one piece of the puzzle.

Explore our Canadian Rock Stars List to discover 300 dividend-growing stocks showing a positive dividend triangle (5-year revenue, earnings per share (EPS), and dividend growth trends) with filters.

Start your stock research on the right foot with the best Dividend Stocks List. Enter your name and email below.

Canadian Dividend Rock Stars List

I used to think that dividend stocks with a yield lower than 3% were worthless. Two decades of investing proved me wrong!

The Canadian Rock Stars List is a selection of the safest dividend stocks in Canada, identified through a rigorous screening process.

Unlike traditional high-yield lists, this selection combines dividend growth, financial strength, and credit stability to determine the best long-term holdings for investors seeking both income and growth.

Dividend Growth Investing = Safe Investing, 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, offering a stable dividend yield and being able to weather market storms. Some others are my growth equity, providing lower yields but strong dividend growth and stock price appreciation potential.

Combining various dividend growers will create a balance where your portfolio will help you retire stress-free.

Even Vanguard—a pioneer in ETF investing—conducted studies on recent market history and concluded that dividend growers are among the best-performing assets.

Performance of dividend-oriented equity stategies figure by Vanguard — Performance of dividend-oriented equity strategies figure by Vanguard.

According to Vanguard’s study over these 20 years, dividend growth stocks not only beat the market, but they did it with less volatility.

While dividend growers usually give investors 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 wondering if it would be appropriate to cash your profits and protect your capital.

The Ultimate Safe List to Get Dividend Growth Stock Ideas

To help you build a solid portfolio with dividend growth stocks, I have created the Canadian Rock Stars List, showing about 300 companies with growing trends.

You can read on to understand how it is built and why it’s the ultimate list for Canadian dividend investors, or you can skip to the good stuff and enter your name and email below to get the instant download in your mailbox.

How Has the Canadian Rock Stars List been Built?

This Canadian dividend stocks list has been created with the help of our investment membership; Dividend Stocks Rock. The market will keep throwing you curveballs, so let’s make sure you don’t whiff on them.

We have a clear strategy: we focus on dividend growth stocks.

We handpick companies showing a strong dividend triangle (revenue, earnings, and dividend growth trends) and make sure we understand their business model. Since our model is easy to understand and we know why we use it, we never doubt ourselves.

The Rock Stars List isn’t just about yield—it’s built using a multi-step screening process to ensure the highest-quality dividend stocks.

Here’s how we select the best Canadian dividend stocks:

Revenue & Earnings Growth—Minimum 1% annualized growth over 5 years (adjusted for market cycles).
Dividend Growth—Minimum 5% annual dividend growth over 5 years.
Financial Strength—We use Refinitiv’s StarMine Credit Score to assess a company’s ability to handle debt and maintain dividends. It ranks a company’s 1-year default probability from 1-100, with higher scores indicating lower bankruptcy risk.
Value Analysis—We integrate the StarMine Value Score and analyze six valuation metrics to avoid overpaying. It ranks stocks (1-100) based on their valuation, with higher scores indicating better value. It evaluates six key metrics: EV/Sales, EV/EBITDA, P/E, Price/Cash Flow, Price/Book, and Dividend Yield.
ESG Considerations—The Refinitiv ESG Combined Score evaluates a company’s Environmental, Social, and Governance (ESG) performance, factoring in reported data and controversies. A higher score (1-100) indicates more substantial corporate responsibility, while legal or ethical issues can lower a company’s rating.

It’s a stronger list than the dividend aristocrats, as we combine various metrics on top of dividend growth.

By filtering the market to find Canadian stocks showing growing sales, earnings, and dividends, we are convinced we can pick among the best Canadian dividend stocks, period.

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? Companies with several growth vectors 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 that 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 straightforward statement. Still, if earnings don’t grow strongly, there is no point in thinking that the dividend payment will increase indefinitely. Keep in mind that the EPS is based on a GAAP calculation. This 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 actual dollar amounts or the yields because we focus solely on dividend growth.

Dividend growers show confidence in their business model.

This is a statement claiming that the company has enough money to grow its business and reward shareholders simultaneously. It also tells you that the business can pay off its financial obligations and invest in new projects (CAPEX). No management team will increase its dividend if it lacks the cash to run its business.

The Dividend Rock Stars List: The ONLY List Using the Dividend Triangle

The dividend triangle is an exclusive concept developed at Dividend Stocks Rock (DSR).

While many seasoned investors use these metrics in their analysis, no one has created a list based on them before.

Don’t waste any more time with complex strategies and dozens of metrics duplicating each other: focus on quality and download the list with filters now.

What Does a Strong Dividend Triangle Look Like?

Putting those metrics into a stock screener is one thing, but knowing what to do with them is another.

The problem with a simple stock screener is that it will give me the 3-year or 5-year annualized growth, but I can’t see the trend.

A strong Dividend Triangle should show steady revenue, earnings, and dividend growth over time. The trend over the past five years for each metric is long enough to show the current tendency and highlight some jumps or drops I must investigate.

Below is an example of two dividend stocks:

🟢 Strong Dividend Triangle Example (National Bank of Canada – NA.TO)

Revenue: Consistent annual growth of 5%+
EPS: Follows revenue growth, ensuring profitability
Dividend Growth: Resumes steady increases after economic downturns

A decrease in earnings during the pandemic led to a pause (forced by regulators) in dividend growth. Now that the pandemic is behind us, National Bank is back on the Rock Stars list with a strong dividend growth potential.

🔴 Weak Dividend Triangle Example (Algonquin Power & Utilities – AQN.TO)

Revenue: Inconsistent growth due to high debt and acquisitions
EPS: Declining due to rising borrowing costs
Dividend Growth: ❌ Cut after financial struggles in 2022 and again in 2024

Download the Exclusive Dividend Rock Stars List

This Canadian dividend stocks list is updated monthly. You will receive the updated version every month by subscribing to our newsletter. You can download the list by entering your email below.

This isn’t just a list of high-yield stocks—it’s a handpicked selection of Canada’s best dividend growth stocks, backed by detailed financial analysis.

✅ Monthly updates
✅ Full dividend safety ratings
✅ 10+ Metrics with filters

Enter your email to get the latest Canadian Dividend Rock Stars List now!

Dogs of the TSX – Beat The TSX! 2025

What if you could beat the Canadian market 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. He suggested that you could beat the index by selecting the highest dividend yielders of the TSX each year.

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’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 dividends.

#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 haven’t performed well 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 (BTSX) Stocks List 2025

Here’s the list of the top 10 yielding stocks from the TSX 60 for this year. All you have to do is invest an equal amount of money in each dividend stock to build your portfolio.

	COMPANY	SYMBOL	PRICE	DIVIDEND	YIELD
1	Bell	BCE.TO	$34.07	$3.99	11.71%
2	Telus	T.TO	$20.56	$1.61	7.83%
3	Enbridge	ENB.TO	$63.88	$3.77	5.90%
4	Algonquin Power	AQN.TO	$6.32	$0.36	5.70%
5	Bank of Nova Scotia	BNS.TO	$74.53	$4.24	5.69%
6	Emera	EMA.TO	$54.36	$2.90	5.33%
7	Pembina	PPL.TO	$52.55	$2.76	5.25%
8	Power Corp	POW.TO	$43.31	$2.25	5.20%
9	Canadian Natural Resources	CNQ.TO	$44.43	$2.25	5.06%
10	TD Bank	TD.TO	$66.14	$3.28	4.96%

30 Years of Outperformance for BTSX

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!

I must add that it did not beat the market in 2023 and 2024. While the results were just 1% apart in 2023, we can see a difference of 4% in favor of the market in 2024. The narrowed sector allocation of this strategy can explain this. I have given more thought to BTSX’s recent performance in the episode below.

As shown below, the average for five years and more still exceeds the market. In 2024, pipelines in the BTSX portfolio highly compensated for other losers.

Average rate of return over time graph. Source: Dividend Strategy.

Why the BTSX Portfolio 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.

#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.

Use This List Instead

Actually, you could beat the TSX using a list of well-diversified dividend growers that are leaders in their industry. I have built a list of them for you to download for free using this strategy and the tools at Dividend Stocks Rock. Enter your name and email below to get your spreadsheet with filters.

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 researching and understanding a company’s business model before I add it to my portfolio. Buying stocks based on an index and a dividend yield seems 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 an 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 reason to change something that already works.

I have created a mock portfolio of the 2025 BTSX using the Dividend Stocks Rock PRO Dashboard just to see how it would look. Not only is it highly concentrated, but it includes many companies with poor ratings, such as Bell (BCE.TO) with a PRO Rating of two and a Dividend Safety Score of one, and Algonquin (AQN.TO) with two for both ratings.

BTSX Sector Allocation and Stocks Ratings powered by DSR.

If you’d like to have more details on my investment thesis for the companies part of the Dogs of the TSX, I have reviewed them in this episode.

Exclusive List of Dividend Growers with More Potential

There is another way to beat the TSX with more conviction. It is to invest in companies that show revenue growth, earnings per share (EPS) growth, and dividend growth. Selecting well-diversified holdings with growth metrics ensures your portfolio will beat the market for decades!

To help you build a solid portfolio, I have created the Canadian Rock Stars List, showing over 300 companies with growing trends.

Enter your name and email below to get the instant download in your mailbox.

Canoe Income Fund (EIT.UN.TO) Review – 2024

Canoe EIT Income Fund is a Canadian closed-end investment trust. The investment objective of the Fund is to maximize monthly distributions relative to risk and maximize net asset value while maintaining and expanding a diversified portfolio. In other words, EIT has been created to take your money, manage it, and distribute juicy monthly dividends to help you manage your retirement budget.

Learn how to create a recession-proof portfolio. Download our free workbook now!

What Canoe Income Fund looks like

The Canadian fund includes 47.3% (7% less than last year) of Canadian equity stocks, 50.4% (+7%) of U.S. stocks, 5.58% (you read that right, the website shows 103% of the money invested…that’s probably linked to leverage.) of international equity, and 0% (in line with last year) cash. Despite having less than 50% of its assets invested in Canadian firms, its sector breakdown is heavily concentrated in financials, energy, and materials (55.98%).

Source: EIT website

Top-25 Holdings

They have an impressive diversification of stocks from low yield to high yield with various safe stocks and other quite speculative securities. The fund has greatly diminished its exposure to the energy sector, as they have made the smart move of cashing in on many of their gains in that sector.

Another interesting point is the amount of turnover in the fund when we compare their top holdings from August 2023. I have highlighted (in green) 9 positions out of 25 (36%) that are not in the top 25 this year. Last year, it was 12 positions for a 48% turnover rate.

But my opinion does not really matter if the fund helps you retire happily. Let’s look at what does really matter though and that is how the fund’s money has been managed over time and how much you profit (or not) from the management team led by Rob Taylor, CPA, CA, CFA (yes, he needs 2 business cards to include all his titles!).

Secure your retirement. Download our Recession-Proof Portfolio Workbook.

Performance & Distributions

From their website, we can see that EIT has outperformed the TSX on a consistent basis (which was not the case prior to 2020). Their focus on the energy and basic materials sectors clearly paid off after the pandemic and now the fund has moved to other sectors.

However, I don’t particularly appreciate that they only use the TSX as their benchmark and ignore the S&P 500. With 50% of their portfolio invested in the U.S., it seems only fair to include U.S. and international components to their benchmark measures.

Just for fun, I ran the calculations using a portfolio with 47% XIU.TO, 50% SPY and 3% XEF.TO (for international equity) for the past 10 years, 5 and 3 years. Results include dividends and are as of 7/31/2024 to match their website.

CAGR: 10yr: 10.44%, 5yr: 12.72%, 3yr: 8.6%.

This is quite interesting, as our conclusions in 2021 and 2020 were not the same. The first two times we analyzed the fund, it had underperformed the index portfolios we created. This time, it is quite the opposite. You can see that change occurred around mid-2021 where Canoe started to surge while indexes reached a plateau and eventually decreased in 2022.

The idea of having a high-yield investment (EIT.UN.TO pays 8.5% yield at the time of writing) where distributions are paid monthly is quite interesting. If you reinvest the distribution, you could beat the market, which is quite impressive! Strangely enough, EIT.UN.TO returns are now quite similar to my personal portfolio.

The lesson here is that conclusions and returns can vary from one year to another. We will review Canoe again next year. The Canoe fund could be an interesting way to generate a high income from your investments. However, if you cash this distribution, make sure you realize two things:

#1 Your capital will not likely grow over time

#2 Your dividend will not likely grow over time

Therefore, it’s an interesting investment vehicle for income, but that income is not inflation-proof. In fact, you receive a lot less today than 10 years ago. If you reinvest the dividend in the fund, then, you get a good total return. However, you don’t get to cash the dividend to fund your retirement.

Do you see how we run into circles?

Canoe and the habit of issuing more shares

Another interesting point is that Canoe has continuously issued more units year after year since 2018. This is great for raising money to invest and capture opportunities. However, it’s not that great when you consider that it increases the amount to be paid in dividends each year.

With this kind of structure, it looks like Canoe will do well as long as we are in a bull market. If units start to tumble, Canoe will have difficulty issuing more shares to invest and pay the current dividend. This could put serious pressure on Canoe’s ability to maintain its generous distribution.

Final Thoughts

Canoe EIT income fund is not the worst investment in the world. In fact, it generated decent returns considering its dividend. While recent performance has been impressive, the fund is not perfect. First, ownership of this fund does not avoid value fluctuations when the market is shaky. If you looked at your portfolio value during corrections Canoe did not save you from headaches.

The only thing that is “guaranteed” is the dividend payment… until it isn’t. Does any Canadian remember Financial Split Corp (FTN.TO) or Dividend 15 Split Corp (DF.TO)? They were both famous for their high yields and super solid investment strategy. I will leave it to you to research them today if you are curious. Did I ever tell you there is no free lunch in the world of finance and investments?

Canoe looks good today, but it was not the same story three years ago. Can it show more consistency going forward? Only time will tell.

Buy List Stock for May 2024: Telus (T.TO / TU)

A buy list stock of mine since March 2023, Telus is still in my top five Canadian picks for growth. As future growth in the wireless industry is limited, Telus has diversified its business to find new growth vectors. The company is acting wisely in the face of the current headwinds by reducing its capital expenditures (CAPEX) and increasing its cash from operations. It hasn’t received a lot of love from the market in the last two years, and likely won’t in 2024, but I believe that will change eventually; in the meantime, investors enjoy consistent mid-single-digit dividend increases every year.

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Telus Business Model

TELUS Corporation is a Canada-based telecommunications company. The Company provides a wide range of technology solutions, including mobile and fixed voice and data telecommunications services and products, healthcare software and technology solutions, and digitally led customer experiences.

Data services include internet protocol, television, hosting, managed information technology and cloud-based services, software, data management and data analytics-driven smart-food chain technologies, and home and business security. It operates through two segments.

The technology solutions segment includes network revenues and equipment sales arising from mobile technologies, data revenues, some healthcare software and technology solutions, voice, and other telecommunications services revenues.
The International segment is comprised of digital customer experience and digital-enablement transformation solutions, including artificial intelligence (AI) and content management solutions.

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Telus Investment Thesis

Telus has grown its revenues, earnings, and dividend payouts very consistently. Very strong in the wireless industry, the company is now tackling other growth vectors such as internet and television services. Telus has the best customer service in the wireless industry as shown by its low customer loss 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 to original and profitable ways to diversify its business. Telus Health, Telus Agriculture, and Telus International (tech & games, finance, eCommerce, and artificial intelligence) (TIXT.TO) are small, but emerging divisions that should lead to more growth going forward. In 2022, Telus acquired Lifeworks for $2.3B to boost its health business segment.

In 2023, CAPEX slowed down ($2.6B) and was mostly financed by free cash flow ($2B). This explains why the company keeps its generous dividend growth streak alive. For 2024, the company expects lower CAPEX and stronger operating cash flow. We like that mix!

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Telus Last Quarter and Recent Activities

Starting in 2023, the macroeconomic landscape has made it a challenging time for the telecommunications industry and Telus is no exception—years of fueling growth through cheap debt ended with rising interest rates.

Telus recently reported lackluster results for Q1’24. Consolidated revenue was down 0.6% and adjusted EPS was down 3.7% compared to Q1’23. Revenue for wireless/wireline revenue was up 0.4%, but down in for Telus Health (-0.7%), Agriculture (-0.24%), and International (-.98%).

Cash flow from operations of $950M increased 25% from Q1’23, but free cash flow was down 26% to $396M, due in part to interest charges going up to $394M from $320M.

Telus is keeping its CAPEX stable, a wise move during this difficult time. It reaffirmed its 2024 full-year guidance that it will have sufficient cash flow to pay dividends.

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Potential Risks for Telus

Competition is increasing among the Big 3 in the wireless market; Rogers and Shaw merged, and a new player is arriving on the scene, with Quebecor acquiring Freedom Mobile. Margins could be under pressure in the future. Also, the federal government wants more competition for the “Big 3” and is likely to open the door to new competitors down the road.

As the wireless market becomes fully mature, Telus will need other growth vectors. TV & internet won’t be enough to prevent Telus from becoming another Verizon (VZ) ten years from now. We’re not convinced by the acquisition of Lifeworks, specifically its cost. We will see how Telus integrates the business into its Health division.

Finally, Telus’ debt has increased substantially, from $12B in 2015 to $27B in 2024. Higher rates might affect future profitability, especially if they persist. Everyone expects tate cuts in 2024, but so far, the Bank of Canada keeps delaying them due to inflation. The headwinds facing the company explain its stock performance as of late.

Telus Dividend Growth Perspective

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 regularly taking away significant amounts of cash due to their massive investment in broadband infrastructure and network enhancement.

Such investments are crucial in this business, and, for a good while, Telus filled the cash flow gap with financing. At the same time, Telus continued to increase its dividend twice a year, exhibiting strong confidence from management. In 2023, Telus increased its dividend twice for a total increase of 7% for the year.

However, with the higher cost of debt and other macroeconomic challenges, Telus has wisely reduced its capital expenditures. This decision has already helped increase its operating cash flow, contributing to the dividend’s safety. Investors can still expect the dividend to increase, but I suspect the dividend growth will slow down in 2025 while the company faces the current headwinds and because of its lower free cash flow.

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Final Thoughts on this Buy List Stock

The story for Telus in 2024 is about three important metrics: cash from operations, capital expenditure (CAPEX), and free cash flow. I want to see the first one go up, the second one go down, and the last one to cover the dividend payments. I have Telus in my portfolio. Over the next few quarters, I will keep an eye on these metrics.

Right now, Telus is struggling a bit and not performing as well as I’d like. I still see a lot of potential in its diversified business areas, Telus Health, Telus Agriculture, and Telus International. These should eventually generate growth for the company. For a patient investor who’s in it for the long haul, Telus could be a great opportunity and that’s why it’s a buy list stock of mine.

Quarterly Review of Your Stocks Made Easy

Quarterly review of your stocks made easy! That’s what I aim to do in this post. Reviewing your holdings’ quarterly results and your reasons for holding each stock to begin with are essential. It makes you confident that you have a resilient portfolio that suits your needs and that protects your retirement.

Finding the information

You’ll find most of the information you need in the companies’ quarterly results press releases. You can also look at their quarterly reports, management discussion and analysis (MD&A), and filing documents. Go to each company’s website, in the Investor Relations section. Dividend Stocks Rock members get links to the press releases in their quarterly reports and see trends for many metrics on stock cards.

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Trends and anomalies

Graphs showing an emerging trend of growth for revenue and EPS. — The trend is your friend

Reviewing results isn’t simply checking that sales and profits grew compared to last year. You must also look at the trends, i.e. the evolution of revenue, profit, dividend, etc., over time to see whether the company consistently succeeds. The trend is your friend. Also, when results show something unusual, going against the trend, investigate.

For example, you see a sharp drop in sales for a company that has increased its sales every quarter over five years. Do you panic and sell the stock? No, you investigate to see if it’s a temporary setback. Maybe the company had to shut down production when a storm damaged its facility or a ship stuck in the Suez Canal led to a shortage of raw materials.

Revenue growth

In the most recent quarterly results, look for the company’s revenue or sales. Revenue includes money made from sales and other sources, such as investment income.

1 – Compare the revenue number with the comparable period, also called the year-ago period. This is the same period of the year but a year ago. If you’re looking at Q2 revenue, compare it with Q2 revenue from a year ago.

2 – Has the revenue grown, is it flat with last year’s, or has it decreased? By how much in percentage?

Generally, 1% isn’t much, single-digit growth or decline is moderate, while double-digit growth (10% and more) is solid. Of course, that varies across industries and companies; 10% growth in a quarter for a company will disappoint if it had been growing its sales by 20% every quarter for two years.

3 – Look at the company’s quarterly revenue trend over five years. Does the trend show growth over five years? It is steady growth or accelerating? Is the trend showing a decline?

Is the most recent revenue figure within the trend or is it unusually good or bad? If it’s unusual, investigate the cause. The press release often explains exceptional conditions or one-time events that caused an anomaly.

Profit Growth

You also compare the company’s profit with that of the prior-year period. The profit is called net income or net earnings. The easiest metric to use for profits is the Earnings per Share (EPS) metric. EPS is a metric that divides the company profits by the number of shares.

One-time or unusually large expenses, for example, a lawsuit settlement or a product recall, affect EPS. Companies often provide another metric called the Adjusted EPS (or normalized) that excludes such unusual items to provide a value that is more comparable to that from the prior-year period.

1 – Observe whether the EPS (or Adjusted EPS) has grown, is flat, or has decreased, and by how much in percentage.

2 – Look at the EPS trend over five years. Is the company growing its profits, is it stagnating, or in decline? Is EPS growth or decline steady or accelerating?

Accelerating growth hints at a thriving company that executes well while an accelerating decline is a problem.

3 – Are the most recent EPS within the trend or unusual? For unusual EPS, investigate.

If there was a sharp sales drop, EPS falling is not surprising. If EPS falls more than sales or falls while sales increase, perhaps the company costs have risen due to inflation, shortages, etc. Maybe the company lowered its prices to customers to drive up sales, reducing profit margins at the same time.

For some industries with large amounts of depreciation, such as utilities and REITs, EPS can be misleading. Other metrics such as distributable cash flow (DCF) per share or funds from operations (FFO) per share are more appropriate.

Dividend Growth and Safety

Compare the most recent dividend amount paid or announced with the dividend paid in the previous sequential quarter, i.e., when looking at the Q3 dividend, compare it to Q2 rather than Q3 of the previous year.

1 – Has the dividend increased? Is it the same? Was it cut? I usually don’t hold on to companies that cut their dividends.

2 – If there wasn’t a dividend increase, look at the dividends paid over the last 12 months; was there an increase in the last year? A yearly dividend is a minimum for a dividend growth investor.

3 – How much was the dividend increase in percentage? Does it at least match inflation? Companies that don’t consistently match or exceed inflation don’t protect your income in the future.

4 – Look at the dividend trend over five years. Is there yearly growth? Is growth accelerating, steady, or slowing down? Often, dividend growth that slows down is the first sign of a dividend cut in the future.

5 – Look at the company’s payout ratio. This ratio identifies how much of the profits the company pays out in dividends. We all want generous dividends, but if a company pays more than it earns, that’s not sustainable. Compare the latest payout ratio with the payout ratio trend over five years to see whether it is normal for this company, higher or lower. You might also want to look at the cash payout ratio; for some industries, you should look at other payout ratios that are more appropriate.

6 – Look at the company’s cash from operations amount and see the five-year trend. Companies that generate increasing amounts of cash from operations are in a good position to keep paying and increasing their dividends.

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Company’s future

Now that you know how a company performed and how it’s evolving, look at what’s in store for that company in the future. Will it be able to keep growing for years to come? Are there risks heading its way? Some things to look for include:

Mergers and acquisitions that bring challenges but also growth opportunities.
Company getting rid of non-productive assets or brands to improve their future results.
Announcements about new products, expansion in new markets or business areas.
Capital expenditures (CAPEX) invested in infrastructure; is it likely to bring revenue growth?
The company’s outlook for the full year, or the new year.