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It’s an excellent time to go shopping for passive income. Canada’s top dividend stocks have either seen price corrections or dividend hikes. Stocks have to stay competitive with the fixed income market, so yields have surged higher. That means investors have plenty of options right now.
Here are the top dividend stocks in Canada right now.
Fortis
Utility giant Fortis (TSX:FTS) is Canada’s top dividend stock — and it’s not because of the yield. Fortis offers only 3.66% in dividend yield right now, which is lower than the interest rate you can expect on a traditional Guaranteed Investment Certificates (GIC) or term deposit.
However, Fortis offers two features that investors cannot expect from GICs or other dividend stocks: growth and long-term stability. GICs can lock in rates for five years or so, but Fortis has a track record of high dividends stretching back decades. It has also hiked its dividend by 5-6% on average every year for the past 29 years.
GICs are also locked to the central bank’s benchmark interest rates, so if the Bank of Canada cuts rates in the future GICs could become less attractive. But rate cuts could add value to Fortis stock. The underlying utility business is somewhat immune from the market cycle, which means investors can rely on the dividends for decades.
That’s what makes Fortis a top dividend stock for retirement investors.
Bell Canada
BCE (TSX:BCE) is another top dividend stock for Canadian investors. Just like Fortis, this telecom giant is a Dividend Aristocrat. The company has expanded its dividend at a compound annual growth rate (CAGR) of 5.5% since 2000. Meanwhile, cash flows are growing as well. BCE reported 12.6% growth in annual cash from operations over the past five years.
BCE’s reliability stems from its position in the Canadian wireless market. The company has the largest subscriber base in a concentrated market, which gives it pricing power. BCE also has the resources required to keep investing in its expensive network to stay ahead of the competition.
The company’s growth, meanwhile, is driven by secular trends like Canada’s population growth and the growing demand for wireless data. Considering the rise of immigration and the never-ending demand for online content, BCE’s future growth is pretty much locked in.
This 6.7% dividend stock should be on the top of your watch list.
High-Yield Bond Index
If you’re retired already and living off fixed income, you might need to maximize cash flow in the short and medium term. You also want the safest and most steady option for passive income.
Usually, a GIC would be the best option. However, the highest yield on a GIC I could find as of May 2023 was 5.05% 1-Year Non-Registered and Non-Redeemable GIC. Instead, Canadian investors can bet on U.S. corporate bonds that offer better yields.
iShares U.S. High Yield Bond Index ETF (CAD-Hedged) (TSX:XHY) offers a yield of 5.72%. The fund has exposure to over 900 high-yield, non-investment-grade U.S. corporate bonds. These rates could move higher if the Federal Reserve keeps hiking interest rates in the future.
For those seeking passive income right away, this fund is one of the best dividend stocks to buy.
