Top 3 Canadian Dividend Stocks for 2020


Happy New Year Dear Dividend Investors!

As you read this, my Top 3 Canadian Dividend Stocks for 2020, I’m flying over the Atlantic Ocean, scheduled to land on January 2nd in Hanoi, Vietnam. This is a great way to start the year!

What are the best Canadian dividend stocks for 2020? Do you think the market will continue to rise or will we finally hit the crash everybody is talking about?

I don’t really worry about where the market will go in 2020, to be honest. What really matters is how many dividends I will receive in the next 12 months. I can tell you it’s going to be more than last year. Although following the market is like watching a tennis ball bouncing up and down, focusing on dividend growth alleviates the stress.

It’s never easy to pick stocks in such volatile market.

Here’s a shift of perception I’d like to suggest: look at the amount of dividends you receive each month or each quarter:

Keep your eyes on the prize: dividend growth!

Which Canadian Dividend Stocks Should be in your portfolio for 2020?

Today, I’m picking companies that will pay and increase their dividends and will likely provide you with a nice capital appreciation. The selection methodology of those companies is explained in this article:

What should a Dividend Growth Investor buy in 2020?

Here are some great stock ideas for 2020:

Andrew Peller (ADW.A.TO)

Andrew Peller Wayne Gretzky EstatesMarket cap: 1.0B

Yield: 1.75%

Revenue growth (5yr, annualized): 5.09%

EPS growth rate ((5yr, annualized): 8.66%

Dividend growth rate (5yr, annualized): 9.00%

I guess the best deals are to be found in alcohol for 2020! Andrew Peller is one of my favorite consumer staple stocks in Canada. Why do I like such a low dividend yielder? Because of its dominant position in its market. Currently the company has an estimated 27.9% share of total volume and an 8.6% share of domestic volume in the English Canadian wine market, with the Company’s Peller Estates brand the top?selling wine in this market. The company can and has grown through acquisitions (17 acquisitions since 1995) and organically as well.

After a strong ride supported by growth coming from major acquisitions, Andrew Peller has spent the last 2 years integrating those vineyards along with investing massively in its Wayne Gretzky’s brands (craft beers and whiskies). The company expects to increase its margin and benefits from organic growth coming from its recent massive investments. While the yield isn’t that impressive now, you can count on steady high single-digit increases in both top-line revenues as well as the dividend.

Royal Bank (RY.TO) (RY)

Royal BankMarket cap: 149B

Yield: 3.91%

Revenue growth (5yr, annualized): 6.23%

EPS growth rate ((5yr, annualized): 7.84%

Dividend growth rate (5yr, annualized): 7.46%

Royal Bank is probably the company that has ranked highest on my “top stocks of the year” most often since my first write-up in 2012. The reason is quite simple: this bank is the definition of a “sleep well at night” investment. I often use Royal Bank in my presentations when I want to explain the dividend triangle. RY shows not only growth, but most importantly, steady growth for all three metrics. This is a “no surprise” type of business.

Royal Bank dividend triangle

Since it is the largest Canadian bank (or second largest behind TD, depending on what metrics you are evaluating) and has developed a diversified business model through the U.S., wealth management, capital markets and insurance services, it is in a good position to get through a potential housing slowdown in Canada. The Bank has recently inked a partnership to participate in the ETF market with BlackRock, who happens to be the world’s largest ETF maker.

I do have to admit, it is hard to fail when you buy shares in a Canadian bank. RY is my favorite due to its dominant position and its diversified sources of business. In my opinion, today is always the best day to buy Royal Bank shares.

Fortis (FTS.TO) (FTS)

Fortis utilityMarket cap: 25B

Yield: 3.44%

Revenue growth (5yr, annualized): 15.70%

EPS growth rate ((5yr, annualized): 8.41%

Dividend growth rate (5yr, annualized): 6.83%

The last, but not least, company to be reviewed in our top 20 for 2020 is the most stable Canadian utility: Fortis. The company has a stellar dividend growth history and has survived through multiple recessions and crises. It’s ability to increase its dividend while keeping its payout ratio in the 60-70% range is nothing short of extraordinary. If you are looking for stability in 2020, FTS should be your first pick.

Fortis dividend

Source: Fortis investors relation website

You will rarely find a company with such a profile paying a decent yield (3.50%). The recent stock price drop also opens a small window to making a quick buck, but its real power resides in its income generation. Like Dominion, Fortis counts on an aggressive investment plan ($18.3B through 2020-2024) to boost its revenue. Earnings are expected to grow at a 6-7% pace going forward. With 94% of its assets being regulated utilities, rates will increase naturally… as well as your paycheck.

Find out about 6 companies that will crush 2020

Each year, I compile a list of 20+ stocks that are expected to do better than the market. In 2019, my US picks outperformed the market by 7% and my Canadian picks did 10% better than the TSX. You can download 6 of my top 20 for 2020 right here:

Disclaimer: I hold shares of Andrew Peller, Royal Bank and Fortis.

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