Dividend Investing: Top Canadian Dividend Stocks of 2024

Dividend stocks are stocks that pay you for investing in them. The amount you receive is based on the stock’s dividend yield and value.

For instance, a 4% yield with a $12 share price results in $0.48 per share. Having a diversified holding of dividend stocks is one of the best ways to earn passive income. Dividend stocks can have the double benefit of appreciating in value like other stocks.

Many dividend stocks are large-cap, blue-chip companies with positive cash flow, an established brand, and reliable revenue. For that reason, they’re typically less volatile than other stocks, such as growth and small caps.

While dividend stocks might not appreciate significantly over time, they can provide a stable and growing income stream, which could be an ideal investment strategy for risk-averse investors or those nearing retirement. 

Of course, dividend stocks are investments, and, as such, they do have some risks. To help you pick the right dividend stocks for your portfolio, here’s a crash course in dividend stock investing.

What are dividend stocks?

Dividend stocks are shares of publicly traded companies that distribute regular payments to stockholders. These regular payments are called “dividends,” and they’re paid out on a periodic basis, such as quarterly, semi-annually, or annually.

Yes, this type of stock literally pay you for investing in them. Not only do dividend stocks pay out a portion of the company’s profits, but the stock itself can appreciate over time. This double whammy of dividends and stock price appreciation can lead to some major gains for stockholders.

The best dividend stocks will give you predictable payments, which can become a reliable source of passive income. Of course, dividend payouts can change, especially if the company or the economy itself starts to falter. But with a diversified dividend portfolio, you could receive payouts with a higher degree of certainty.

How do dividend stocks work?

To understand how dividend stocks work, let’s look at an example.

Let’s say you own 100 shares of a dividend stock, with each share worth $12. The dividend stock has a 4% yield and pays out annually, which means you get 4% of $12 multiplied by your total holding each year. That comes out to around $0.48 per share, or $48 for your 100 shares. 

That might not seem like a lot. But let’s assume you have $10,000 to invest with, and you choose the dividend stock above. Your $10,000 can buy around 833 shares.

If the yield and value hold steady, you can earn around $400 per year. That’s a good amount of passive income!

Once you receive your dividend payment, you can do a number of things. You could choose to reinvest your dividend into the company, expanding your shareholding, or you could buy stock of another company. Of course, you could also choose to save the money, or spend it, whichever fits your liking.

Top high dividend stocks in Canada

By focusing on strong, solid companies that regularly increase dividends, a small sum of money could grow into something significant.

Let’s look at the top Canadian dividend stocks in order of highest market cap.

Some of the best Canadian dividend stocks to consider as investments include:

Fortis

Fortis is an electric and gas company that operates 10 utility transmission and distribution assets between Canada and the United States, worth around $58 billion. It also has electricity generation assets in the Caribbean.

Fortis gets around 99% of its revenue from regulated assets, so you can trust its cash flow is predictable.

As far as dividend yield, the company doesn’t boast the highest yield in Canada. But because the company’s services are necessities (everyone needs electricity), you can trust the dividend will hold steady.

Even at a lower rate, Fortis has raised its yield for 48 years straight. Not only that, but Fortis has plans to expand its utilities operations through more acquisitions and new capital projects, all of which will help it raise dividend yields by 6% annually at least through 2025.

BCE Inc.

BCE Inc. is one of Canada’s largest wireless and internet service providers, whose 10 million customers make up around 30% of the national market.

Not only does it dominate the telecommunications sector, but it also has a media segment, which provides news and entertainment through radio, television, and digital media.

The company is rapidly expanding into 5G technology, which is helping to sustain its upward growth. And for 14 consecutive years, it’s raised its dividend by 5% or more. 

Enbridge

Enbridge is a massive midstream oil company that transports around 30% of the oil produced in North America.

The company’s pipelines include a natural gas pipeline system, regional oil sands pipelines, and a regulated natural gas utility system. It has even stretched into renewables, reinvesting money into wind and solar energy projects.

The company is now in its 27th year of increasing dividends, which is a good sign to investors.

How to invest in Canadian dividend stocks

When you look at a list of Canadian dividend stocks, you’ll immediately notice one thing: it’s long and constantly growing. That’s not a bad thing, but it can make choosing the best Canadian dividend stocks feel daunting.

To help you pick dividend stocks, here are a few steps to get started.

1. Start with companies you know

When you look at history’s most successful investors, such as Warren Buffett and Peter Lynch, you’ll notice a trend: they always invest in companies they understand. And when it comes to whittling down your list of dividend stocks, it might be useful to eliminate companies you’re not familiar with.

Of course, familiarity doesn’t just mean that you recognize the brand. You might know Fortis by name, but if you don’t know its business model, or how it makes money, then you don’t really know Fortis all that well.

On the other hand, if you’re familiar with the gas and electric industry as a whole, then you might be better equipped to understand the individual company, Fortis, that makes up a large part of it.

So take a look at the list below (or any list of dividend stocks for that matter) and identify a few that you’re already familiar with. This will help you get a head start on your research.

2. Research past performance

Once you’ve identified a few dividend companies that you know well, next you’ll want to dive into their dividend history.

At this stage, you’re looking for stocks that have had a strong performance over the long run, which includes upward stock appreciation and regular dividend increases. You might also want to look for stocks that have low volatility (beta numbers could help you here), as well as large market capitalizations.

Basically, you want to be sure the dividend company is going to keep paying out regular dividends, even during recessions.

You also want to check the company’s revenue and earnings growth: steady earnings over long periods of time (as opposed to erratic ones) are a good sign the company has a solid financial footing.

3. Look at the payout ratio

A dividend payout ratio is the percentage of a company’s earnings that’s paid out to stakeholders as dividends. For example, if a company earns $500 million this year and it pays $300 million to shareholders as dividends, then the dividend payout ratio would be 60%.

Of course, you might think the higher the payout ratio, the better. But that’s not always the case. If a company is dishing out 75% or more of its earnings to shareholders, then the dividend might not be sustainable over the long run. Some very large-cap companies can sustain high payout ratios, but smaller companies could risk overextending themselves. 

An ideal payout ratio is around 60%. This means the dividend is likely sustainable and should continue to be paid out over the years you hold the stock.

4. Check the yield

Dividend yield is the percentage of a stock’s price that a company pays to shareholders each year. For instance, if a stock trades for $100 per share today and the company gives $4 per share, then the dividend yield would be 4%.

Dividend yield is important, but it shouldn’t be the only factor that attracts you to certain dividend stocks. Yields often change over time, especially due to market fluctuations and economic disruptions.

While having a stock with a high yield can help you earn more passive income now, you also want that stock to be a strong business that will weather market downturns.

Do all stocks pay dividends?

No, not all stocks pay dividends.

Typically, dividends are paid out by large, well-established companies that have the money to pay back investors. Often, these companies have grown so big, they no longer reinvest money in themselves.

This is different from, say, growth stock companies that reinvest huge amounts of capital in their expansion, research, and product development (growth stocks often don’t pay a dividend).

Are dividend stocks right for you?

Dividend stocks are great long-term investments that can provide a stable stream of passive income. Though they might seem ideal for near retirees or risk-averse investors, they can benefit any type of investor, even if they appreciate at a slower rate.

Of course, like other stocks, dividends can experience volatility over short periods of time, which is why you want to research companies upfront to be sure you’ve chosen one wisely.

Great dividend companies follow some clear characteristics. They have a long history of increasing their dividends, while not cutting yields during hard economic times. They’ve also established themselves in their respective industries, becoming businesses and brands that consumers almost can’t live without.

Investors who aren’t interested in researching and choosing individual dividend stocks for investments may seek to invest in dividend mutual funds or dividend exchange-traded funds (ETFs).

These funds hold a bundle of dividend stocks within one investment, and they’ll distribute dividends to investors from that holding.

Some examples of dividend ETFs include:

• Vanguard FTSE Canadian High Dividend Yield Index ETF (TSX:VDY)
• iShares S&P/TSX Composite High Dividend Index ETF (TSX:XEI)
• BMO Canadian Dividend ETF (TSX:ZDV)

What are Dividend Aristocrats?

Dividend aristocrats on the Toronto Stock Exchange (TSX) are distinguished by their ability to consistently pay dividends to shareholders for 5 years or longer, making them a reliable source for fixed income and potential capital appreciation over the long term. Many belong to the blue-chip category, characterized by large market caps and stable business models that prioritize profit-sharing with shareholders over aggressive growth strategies.

This stability allows them to maintain uninterrupted dividend programs, despite potential fluctuations in dividend yield— the percentage of a company’s share price paid out as dividends annually— which can vary with market performance. This makes dividend aristocrats a potentially attractive component in an investor’s portfolio, especially for those seeking steady income.