The TSX has a plethora of dividend stocks to choose from. Some of these stocks are good, some of these are bad, and some are just ugly. With interest rates surging in the past few years, several Canadian stocks have been forced to cut back their dividend payments.
Canadian investors need to be wary about stocks with elevated dividend yields. Any dividend higher than 7% should be scrutinized. A high dividend yield indicates a dividend (and business) at risk.
If there is doubt, it is best to just avoid these stocks. There is no point in collecting a big dividend if you rapidly lose capital value at the same time.
The best dividend stocks are those with solid balance sheets, defensive business characteristics, a history of earnings per share and free cash flow growth, and a steadily growing dividend.
These stocks may not have the highest yield, but they are ones you want to hold for decades. Here are three TSX stocks worth holding forever.
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A railroad for passive income
Canadian National Railway (TSX:CNR) is a top holding for defence and income. Canadian rails have an excellent moat. They operate as a monopoly in many of the jurisdictions they operate in.
Likewise, their networks are impossible to replicate. Rail is the most cost-efficient way to transport the many bulk materials produced in Canada and the U.S.
CN has grown earnings per share (EPS) by an 11% compounded annual growth rate (CAGR) over the past two decades. It has increased its dividend per share by a 15.6% CAGR over that time. The company believes it can grow EPS by 10% in 2024. It wouldn’t be surprising if this stock increased its dividend by a high single-digit rate in 2024.
CN has strong balance sheet with 2.2 times net debt-to-earnings before interest, tax, depreciation, and amortization (EBITDA). This dividend stock only yields 2% today.
A resource stock with decades of dividends
Canadian Natural Resources (TSX:CNQ) is another dividend stalwart worth holding for decades ahead. CNQ is the largest energy producer in Canada.
It has everything you want in a quality dividend stock. CNQ has excellent operational record, a highly invested executive team, decades of potential energy production capacity, and a low-risk balance sheet.
It just hit its $10 billion net debt target. Now, it is dedicating 100% of excess cash flows to shareholders. That means shareholders will enjoy a wonderful mix of share buybacks, base dividend increases, and perhaps even special dividends.
CNQ has grown its dividend per share by a +20% CAGR for over 20 years. That is a track record you want to align with. It yields 3.8% today.
A financial stock with a rapid dividend
If you want growth and dividend income, goeasy (TSX:GSY) is as solid a stock as you will find in Canada. goeasy has become Canada’s largest lender to the non-prime and sub-prime consumer market. It has a wide retail network that is complemented by a solid online lending platform.
The company has grown EPS by a 28% CAGR over the past 10 years. Its annual dividend per share has compounded by 30.7%. This year, it increased its dividend by 22%.
Given its growing array of financial products (including credit cards), this company could continue to deliver strong earnings. The company has committed to growing its dividend by around the same rate as its earnings. This suggests there is good capital and dividend upside ahead. It yields 2.66% today.
