Canadian Dividend Aristocrats

May 14, 2023

Canadian Dividend Aristocrats are top-tier income investments that offer a rising income stream, financial stability, and strong management commitment to shareholders. These companies, listed on the Toronto Stock Exchange, have consistently increased their dividends for at least five consecutive years, making them reliable sources of fixed passive income.

However, it's essential to consider that dividend increases may not always be substantial, and growth potential may be limited since over 40% of Canada's aristocrats belong to the energy and financial sectors, which can pose a challenge for investors seeking diversification. That's why, when selecting dividend aristocrats, you should consider factors such as familiarity with the company, past performance, payout ratio, and dividend yield.

Our top five Canadian Dividend Aristocrats are Canadian Utilities, Fortis, Enbridge, Canadian National Railway, and Royal Bank of Canada (RBC). These companies stand out for their remarkable track records of consistent dividend payments and commitment to shareholder value. These Canadian Dividend Aristocrats have proven their ability to weather market fluctuations, deliver reliable income, and provide long-term growth potential.

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Canadian Dividend Aristocrats

Dividend growth, a key metric in evaluating Dividend Aristocrats, holds immense significance for income investors. Companies with a record of increasing dividends provide a rising income stream and demonstrate financial strength, efficient capital allocation, and management's commitment to shareholders. If you're searching for a safe and reliable source of fixed passive income, there is no dividend stock safer than a Canadian dividend aristocrat. Below, we'll explore the Canadian Dividend Aristocrats, including the top 5, and help you decide if they should be in your portfolio.


What Are Canadian Dividend Aristocrats?

A Canadian Dividend Aristocrat refers to a company listed on the Toronto Stock Exchange (TSX) that has consistently raised its dividends for at least five consecutive years. All companies in Canada listed on the TSX that meet this criterion, i.e., that have paid increasing dividends to their shareholders for five consecutive years or longer, belong to a class called Canadian Dividend Aristocrats. It’s equivalent to the S&P 500’s list of top-paying dividend stocks dubbed Dividend Aristocrats.

Canadian Dividend Aristocrats

For a company to be a Canadian Dividend Aristocrats stock, it must meet the following criteria:

  • The company must be listed on the Toronto Stock Exchange.
  • It must have increased its dividends for at least five consecutive years.
  • The company must have a market cap of at least $300 million.

The count of dividend aristocrats in Canada has remained relatively stable, ranging from 88 to 93 companies.

Many of these aristocrats consist of blue-chip stocks with large market capitalization and well-established business models prioritizing stability over rapid growth. As a result, these companies can allocate less capital towards expanding their operations and instead allocate more towards distributing profits to shareholders. Due to their consistent profitability, these blue chips can sustain their dividend programs without interruption.

Pros Of Investing In Dividend Aristocrats

  • A stable and reliable source of passive income. Canadian Dividend Aristocrats are top-tier fixed-income investments known for their dependability.
  • Potential for regular dividend increases. These stocks are required to raise their payouts to maintain their dividend aristocrat status, offering the opportunity for higher dividends over time.
  • A consistent dividend program indicates financial stability. Companies that consistently distribute dividends usually demonstrate strong financial foundations.
  • Dividend aristocrat stocks held in RRSPs and TFSAs are exempt from taxes. When your aristocrat stocks are held in a tax-sheltered account like an RRSP or TFSA, you are not obligated to pay taxes on the dividends received.

Cons Of Investing In Dividend Aristocrats

  • Dividend increases might be insignificant. The fact that a company must increase its dividend to maintain its aristocratic status doesn't guarantee a substantial percentage increase.
  • Dividend aristocrats may have limited potential for growth. Generally, growth stocks tend to yield higher returns compared to dividend aristocrats. Many of these companies are already established blue chips or large caps with limited growth prospects.
  • Dividends may be subject to taxation. If you hold dividend aristocrat stocks in a non-registered retirement account, the Canada Revenue Agency (CRA) will require you to pay taxes on the dividends.
  • Canadian Dividend Aristocrats need more diversification. Over 40% of Canada's aristocrats belong to the energy and financial sectors. While this reflects the composition of the TSX, it can pose a challenge for investors who already have significant exposure to these sectors in their portfolios.

Factors To Consider When Selecting Dividend Aristocrats

As you explore the extensive and ever-growing list of Canadian Dividend Aristocrats, selecting the best stocks may initially appear daunting. However, following a systematic approach can streamline the decision-making process.

Here are a few steps to help you get started:

#1 Start With Companies You Know

If you observe the investment strategies of successful investors, you will notice that they always choose to invest in companies they know. Therefore, when narrowing down your list of aristocratic dividend stocks in Canada, it can be helpful to exclude unfamiliar companies.

However, familiarity does not just mean recognizing a brand. You might know a company's name, but your knowledge remains limited without understanding its business model or how it generates revenue.

Therefore, when looking at the Canadian Dividend Aristocrats list, identifying a few companies you already know is only the first step that will lead to your research.

#2 Research Past Performance

Once you have identified dividend companies you are familiar with, the next step is to examine their dividend history.

You should look for Canadian aristocratic dividend stocks with a strong long-term performance at this stage, including consistent stock appreciation and regular dividend increases. It may also be beneficial to consider stocks with larger market capitalizations.

Essentially, this increases the odds that the dividend company will continue to pay regular dividends, even during economic downturns.

Evaluate the revenue and earnings growth of the company as well. Consistent earnings over extended periods indicate a stable financial position.

#3 Assessing The Payout Ratio

The aristocratic dividend payout ratio represents the percentage of a company's earnings distributed to shareholders as dividends. For example, if a company earns $500 million and pays $300 million in dividends, the payout ratio would be 60%.

While a higher payout ratio may seem favourable, it’s not always the case. If a company is paying out 75% or more of its earnings as dividends, the sustainability of the dividend over the long term may not be possible. While some larger companies can sustain high payout ratios, smaller companies may overextend themselves.

An ideal payout ratio is around 60%. This indicates a sustainable dividend likely to continue in the years you hold the stock.

#4 Understand The Dividend Yield

Dividend yield means the percentage of a stock's price that a company pays to shareholders as dividends annually. For example, if a stock trades at $100 per share and pays $4 per share in dividends, the yield would be 4%.

While the dividend yield is essential, it should not be the only determining factor when selecting Canadian aristocrats' dividend stocks. Yields can fluctuate over time due to market conditions and economic disruptions.

While a high yield can provide a higher passive income in the present, it’s also crucial for the stock to be associated with a strong business that can withstand market downturns.

#5 Assess the Company's Financial Health

Evaluate key financial metrics such as revenue growth, profitability, debt levels, and cash flow. A thorough analysis of a company's financial health provides insights into its ability to sustain and grow dividend payments. Look for Canadian Dividend Aristocrats with consistent and increasing revenue, healthy profit margins, manageable debt, and strong cash flow.

#6 Consider the Industry and Economic Outlook

The industry in which a Canadian Dividend Aristocrat operates greatly influences its long-term prospects. Assess the industry's growth potential, competitive landscape, and any regulatory or economic factors that may impact the company's performance. A diversified portfolio of Dividend Aristocrats across different sectors helps mitigate risks associated with industry-specific challenges.

#7 Evaluate the Management Team

A company's leadership and management team are vital to its success. Research the management team's track record, experience, and strategic vision. Look for Canadian Dividend Aristocrats with strong corporate governance structures and a history of shareholder-friendly practices.

The Top Five Canadian Dividend Aristocrats

In Canadian Dividend Aristocrats, some companies stand out for their remarkable track records of consistent dividend payments and commitment to shareholder value. These companies have demonstrated their ability to weather market fluctuations, deliver reliable income, and provide long-term growth potential.

Let's explore the top five Canadian Dividend Aristocrats companies and discover what sets them apart as leaders in dividend excellence.

Canadian Utilities (TSX: CU)A utility company that boasts the most extended history of dividend growth.
 Fortis (TSX: FTS)A large utility company with an impressive track record of over 50 years of consecutive dividend growth.
Enbridge (TSX: ENB)A mid-stream oil company that has achieved over 28 years of dividend growth.
Royal Bank of Canada (TSX: RY)One of Canada's biggest banks and one of the largest stocks on the TSX by market cap.
Canadian National Railway (TSX: CNR)One of the biggest railroads in Canada and North America and has a solid history of dividend growth.

#1 Canadian Utilities (TSX: CU)

Canadian Utilities is the only dividend king in Canada—a company that has increased its dividend for 50 years.

Canadian Utilities has consistently provided shareholders with incremental dividend growth for 50 years and is approaching its 51st year. This accomplishment mainly results from the company's strong financial position and stability. As a utility provider, Canadian Utilities offers essential services that always remain in demand regardless of the economy's overall health.

Canadian Dividend Aristocrats

Although it is a stable and relatively boring stock, Canadian Utilities still has room for growth. The company is slowly shifting its electricity generation from fossil fuels to renewable energy sources. This strategic transition can attract more customers over the long term and capture the attention of investors who support sustainable energy practices.

#2 Fortis (TSX: FTS)

Fortis, one of Canada's largest utility holding companies, is a long-standing dividend aristocrat and one of the oldest. With an impressive track record of 48 consecutive years of dividend increases, it’s inching closer to joining Canadian Utilities as a dividend king.

Canadian Dividend Aristocrats

Like Canadian Utilities, Fortis benefits from its reliable revenue streams, primarily derived from its operations as a utility company. It serves over 3.4 million customers by generating and distributing electricity. Fortis operates as a diversified global energy company with ten utility operations spanning from eastern to western Canada and even reaching the Caribbean.

Fortis is also actively pursuing green energy initiatives and has set a target to eliminate greenhouse gas emissions by 2050. This commitment demonstrates the company's focus on sustainability and aligning its operations with environmental goals.

#3 Enbridge (TSX: ENB)

Enbridge is a midstream oil company that manages an extensive network of active pipelines spanning over 17,000 miles throughout North America. Enbridge has consistently increased its dividend payout for 28 consecutive years as a dividend aristocrat. It makes this list for offering one of the highest dividends among all dividend aristocrats.

Canadian Dividend Aristocrats

However, you should consider other factors when evaluating Enbridge, not just its dividend performance. The company's oil operations drive Canada's economy and contribute to GDP growth. Throughout 2021, Enbridge transported over 4 million barrels of crude oil and liquids daily in North America (across Canada and the United States).

Enbridge's oil transportation to the United States accounts for over 65% of Canadian exports bound for the U.S. and represents 30% of North America's total crude oil production. While the future of oil stocks may be uncertain, Enbridge currently holds a significant position in driving the Canadian economy in the short term.

#4 Royal Bank of Canada (RBC; TSX: RY)

Royal Bank of Canada (RBC) is one of the largest banks in Canada based on market capitalization. It operates 1,210 active branches and serves 17 million clients in 29 countries.

Canadian Dividend Aristocrats

RBC has consistently demonstrated its reliability as a stock. During the 2008 Great Recession, while many other financial institutions were forced to reduce their dividend payments, RBC stood firm and maintained its dividend payouts to shareholders. The same resilience was observed during the recent pandemic-induced economic downturn, where RBC's share prices may have declined, but its dividends remained unaffected.

With its current share price, RBC offers a dividend yield of 4.53%, which may not be the highest among Canadian dividends, but it’s widely known as one of the most dependable.

#5 Canadian National Railway (TSX: CNR)

CN Railway is a Canadian railroad company with an extensive history of dividend growth. In the past five years, Canadian National Railway has consistently increased its dividend by an annual rate of 11.6%.

The strong dividend growth achieved by CN Railway is due to several key factors. Firstly, the company holds a strong competitive position within the industry. In Canada, CN Railway only has one major competitor.

Canadian Dividend Aristocrats

Furthermore, CN Railway's expansive network spans a significant portion of North America, reaching three coasts. This unique distinction sets it apart as the only railroad with such extensive coverage.

Lastly, rail transportation offers cost-efficiency advantages compared to trucks and planes, providing the sector with favourable economics. This efficiency contributes to CN Railway's ability to generate consistent profits and sustain its dividend growth over time.

In Summary

Canadian Dividend Aristocrats are a group of high-performing companies listed on the Toronto Stock Exchange which have a high market cap and deliver consistently growing dividends to their shareholders year after year. Investing in a Canadian Dividend Aristocrat stock is generally a good way to protect your investments against economic downturns while generating passive income at the same time.

That said, there are risks associated with investing in this sector of the economy since it’s made up primarily of companies in the energy and big financial sectors, so they lack a bit of diversification.

If you want to start investing in stocks from Canadian Dividend Aristocratic companies, get a head start with Capital, our #1 best-rated broker.

My #1-Rated Crypto Platform

Capital is the only fully regulated crypto platform that offers zero-commission trading. Plus, new users can get started with a demo account and deposit real funds later.

Click below to skip the line and get accepted today. Offer ends April 20, 2024.
Offer ends April 20, 2024.

Dividend Aristocrat FAQs

Should I consider investing in Canadian Dividend Aristocrats?

Yes, you should consider investing in Canadian Dividend Aristocrats if you’re looking for a reliable passive income stream and are willing to trade potential high returns for stability.

For investors seeking exposure to a wide range of Canadian Dividend Aristocrats without having to purchase shares of each company, an alternative to consider is investing in a Canadian Dividend Aristocrats ETF. By buying one share of a Dividend Aristocrats ETF, you can effectively track a broader market, enhancing the stability of your investment and providing a convenient option for diversification.

How can I build a Canadian Dividend Aristocrat portfolio?

You can build a Canadian Dividend Aristocrat portfolio by researching Canadian companies with a history of consistent dividend increases. Diversify across sectors, analyze fundamentals, consider dividend yield and payout ratios, and regularly monitor the portfolio.

Is it wise to invest in dividend aristocrats during a recession?

Investing in dividend aristocrats during a recession can be a wise strategy. These companies are typically more resilient, have a track record of maintaining or increasing dividends during economic downturns, and can stabilize a portfolio during turbulent times. However, conducting thorough research and considering individual circumstances is vital before making any investment decisions.

What is a Canadian Dividend Aristocrat ETF?

A Canadian Dividend Aristocrats ETF is an exchange-traded fund that invests in a diversified portfolio of Canadian companies with a track record of consistently increasing their dividend payments over time. These ETFs aim to replicate the performance of an underlying index comprising Canadian Dividend Aristocrats.

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