Olivier Le Moal
What are some of best Canadian dividend stocks for 2024? After the eventful year that was 2023, it’s confusing to say the least.
Depending on which sectors and markets you were invested in in 2023, you either had a great year or saw your portfolio value decline. As you can see in the graph below, the technology sector dominated the market, but mostly due to a very few big players. The U.S. market outperformed the Canadian market by a wide margin.
In Canada, the energy sector performed better than in the U.S. with +8.18% compared to -2.57%. While the following graph shows the technology, communications, and consumer discretionary ETFs leading the way, take with a grain of salt it shows BMO ETFs that each include several U.S. stocks. Banks and telecommunications companies disappointed in 2023 as did utilities and REITs.
What’s next?
We live in a strange world: inflation hurts consumers’ budgets forcing them to tighten their belt with high interest rates putting even more pressure on them and yet, the unemployment rate remains low because of our aging population.
In the second half of 2023, we saw signs that higher interest rates were finally catching up with the economy and slowing it down. Inflation has lowered, GDP isn’t as strong (Canada even reported a negative GDP late in 2023) and unemployment rates on both sides of the border are going up by a bit.
New inflation data hints at a pause in interest rates. We might even talk about rate decreases later in 2024. However, we won’t see 2% mortgages or debentures in 2024. Companies will have to deal with higher interest rates when refinancing. We’ll continue to feel the lagging impact of those interest rate increases for many years.
If you focus on your portfolio yield, you were unhappy with your results in 2023 and my guess is that it won’t be easy in 2024 either.
That said, the secret is stay loyal to an investment strategy that works for you. For me, that strategy is to invest in dividend growers that I have researched well and in which I am very confident. That helps me to not panic on every whim of the market or each bit of bad news about the economy.
I compile a list of stocks expected to do better than the market for Dividend Stocks Rock members each year. This year, I’ve reviewed the 11 sectors for them and included top picks for each. I’ve decided to share three of them with you: Consumer Discretionary, Financials, and Industrials.
Today, I share with you two stocks that are among my Top Picks for 2024. The selection methodology of those companies is explained in this article:
What Should A Dividend Growth Investor Buy In 2024?
- Market cap: $8B
- Yield: 4.85%
- Revenue growth (5yr, annualized): 6.05%
- EPS growth rate ((5yr, annualized): 10.53%
- Dividend growth rate (5yr, annualized): 17.61%
In an effort to beat the market, I have to take my chances with another iconic brand showing price weakness. Canadian Tire currently trades at a forward P/E of 10. For the record, the past 5-year P/E average is nearly 12. EPS has been on a downtrend as margins are under pressure and the company faces fierce competition.
However, its focus on “home brands” should help margins to expand. Canadian Tire invested massively in its e-commerce platform and uses its store network for pick-ups increasing its digital sales. Again, it’s really an “educated guess”. I expect a choppy year for CTC.A.TO, because we never really know when the rebound will happen.
Canadian Tire 10-year stock price and dividend triangle
- Market cap: $5B
- Yield: 6.78%
- Revenue growth (5yr, annualized): 20.87%
- EPS growth rate ((5yr, annualized): -4.73%
- Dividend growth rate (5yr, annualized): 6.90%
Capital Power has been hurt as have most other utilities over the past two years. However, the company reported solid revenue growth, decent EPS increases, and a mid-single digit dividend growth rate during that period. The company has invested heavily in new projects each year since 2012. This constant investment has enabled CPX.TO to grow its Adjusted Funds From Operations (AFFO) consistently in each of those years.
CPX relied on Alberta for 38% of its revenue and it has made real diversification efforts with multiple acquisitions. After their recent transaction, CPX’s reliance on Alberta’s economy will drop to 31% and the utility company will show a 50/50 Canadian-U.S. exposure. The company will expand its renewable energy activities while counting on a solid natural gas business.
CPX.TO’s management expects to increase its dividend by 6% through 2025. Such a promise is always welcomed by income seeking investors. At DSR, we had updated our dividend growth rate expectations to 6% for the next 10 years, but decreased it to 5% to remain conservative. Through its successful transformation into a more diversified utility company, Capital Power is earning its place among robust Canadian utilities such as Fortis (FTS)(FTS:CA), Emera (OTCPK:EMRAF)(EMA:CA), and the Brookfield family.
I compile a list of stocks expected to do better than the market for Dividend Stocks Rock members each year. This year, I’ve reviewed the 11 sectors for them and included top picks for each. I’ve decided to share three of them with you: Consumer Discretionary, Financials, and Industrials.
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
