The good news, though, is that the field of dividend stocks today is looking lean and fit in terms of both yield and valuation, which could position Canadian dividend investors to reap gains in 2024. And with the Bank of Canada’s three rate cuts since June signalling an inflection point on interest rates, dividend stocks are set to outperform in the months ahead.
Dividend stock performance in Canada
A few years ago, you could count on your hands the number of Canadian large caps paying a 5% dividend. Today, that rate looks almost ordinary. The forward yield on the S&P/TSX Composite Index is 3.3%. That’s taking in some 240 stocks, some of which pay no dividends at all. Just think of the payouts if you decided to be more discerning. With elevated bond yields nipping at their heels, the 176 dividend payers in the S&P/TSX Composite Index average a 3.82% yield. The MoneySense Top 100 dividend stocks in Canada best dividend stocks come out at 3.16% on an equal-weight basis.
That means a couple of things.
First, it would take another year of 3%-plus capital losses for dividend investors to post negative total returns this year.
Second, if—as the market consensus seems to think—interest rates have topped out and central banks will continue cutting rates, bond yields should decline further and stocks’ risk premium will look more and more attractive. This would be a signal for conservative investors to shift some money back into dividend stocks, ultimately supporting their prices.
Using the best dividend stocks methodology of taking not just their yield but also stability and valuation into account, we once again identified Canada’s 100 best dividend stocks. We then narrowed down that list to create an A-Team and a B-Team, each containing 10 dividend all-stars. This year’s A-Team skews heavily to the materials and energy sectors. It includes just two non-resource outliers: insurer and asset manager iA Financial Corp. and technology stock Enghouse Systems.
How Canadian dividend stocks performed
What pops out at first glance of the top ranks is the absence of what usually comes to mind for dividend stocks: banks, utilities, telecoms, pipelines, and real estate investment trusts (REITs).
“The financials have been really out of favour,” says Aman Raina, an investment coach and founder of Sage Investors, who compiled the 2024 list of top dividend stocks. Where they fell short in the calculations was mostly on measures of profitability.
