The appeal of the dividend investing strategy is generating income passively or with minimal effort. However, if you’re in the market for a steady income, if not lifelong income, don’t settle for anything but the best.
In Canada, Bank of Montreal (TSX:BMO), BCE (TSX:BCE), and Canadian Utilities (TSX:CU) are no-brainer choices for income investors. The first two have lengthy dividend track records (more than 100 years), while the third sits on the throne for being a Dividend King (the TSX’s first).
Pioneer
BMO is Canada’s third-largest bank and also the country’s dividend pioneer. The $93.3 billion bank started sharing some of its earnings with shareholders in 1829. If you invest today ($129.38 per share), the dividend yield is 4.69%.
For fiscal 2023 (12 months ending October 31, 2023), net income dropped 63.9% to $1.62 billion versus fiscal 2022. Besides the hefty provision for credit losses ($2.18 billion) in the fourth quarter (Q4) of fiscal 2023, the completed acquisition of Bank of the West in the U.S. pulled down net income by $357 income.
Nonetheless, its chief executive officer (CEO), Darryl White, said the results reflect BMO’s fundamental strength and diversified businesses. The big bank also completed the conversion of Bank of the West customer accounts to its operating systems during the fiscal fourth quarter. Also, BMO estimates cost savings of about US$800 million from the synergy.
Cash cow
BCE has no downside, particularly if profit is the primary consideration. The $50.33 billion telco giant’s average net income in the last three years (2020 to 2022) is $2.78 billion. At $55.18 per share, you can partake in the 7.01% dividend. I’m not anxious about the +150% payout ratio because the telecommunications business is capital intensive.
According to its CEO, Mirko Bibic, the reduced capital expenditure spending in Q3 2023 should result in stronger free cash flow growth or around $900 million in Q4 2023. The latest buzz on BCE is the strategic partnership between Bell Canada and Best Buy Canada. The partners will operate 165 consumer electronics retail stores of Best Buy Express, formerly The Source.
Defensive asset
Utility stocks are sensitive to interest rates but remain defensive assets, especially if the stock wears a crown like Canadian Utilities. The $8.68 billion global utility and energy infrastructure company has raised dividends annually for 51 consecutive years.
Canadian Utilities’s dividend-growth streak should continue, given the growing high-quality earnings base and planned $4.1 billion capital investment ($3.3 billion on regulated utilities) from 2023 to 2025. Management expects the mid-year rate base to be $16 billion by the end of 2025.
In 2022, net income climbed 60.8% to $632 million versus 2021. The projected net income in 2023 should be slightly higher than last year. As of this writing, the share price is $31.31, while the dividend yield is 5.79%.
Dividend masters
Dividend stocks are not created equal, so risks vary depending on the sector and nature of the business. If you want peace of mind and steady, pension-like income regardless of economic environment, limit your choices to dividend masters. BMO, BCE, and Canadian Utilities are blue-chip, large-cap stocks with excellent dividend payment histories.
