3 Blue Chip Canadian Stocks That are Looking Attractive Today
Decade-high interest rates have meant an exciting time for the fixed-income segment of the market, but it’s also left a lot of great value sitting on the sidelines for dividend and yield-focused stock investors. For example, these three stocks are not only paying out a minimum dividend yield of at least four percent annually but, in addition, have maintained conservative payout rates of below 70%.
While investors will often look first to the current yield of an equity security to gauge whether a company has an attractive dividend payout or not, the level of a company’s payout ratio can additionally offer a glimpse into how safe the current payout is and how much capacity a company’s management and its board of directors may have in the future about taking on successive dividend hikes.
What makes the three dividend stocks on this list so interesting is that while they currently offer investors a competitive yield return from their dividend today, there should, in theory, be plenty of room for company leadership to increase that payout for successive quarters and even years to come.
3 Dividend Blue-Chip Stocks for Canadian Investors
- The Toronto-Dominion Bank (TSX:TD)(NYSE:TD)
- Manulife Financial Corporation (TSX:MFC)(NYSE:MFC)
- Suncor Energy Inc. (TSX:SU)(NYSE:SU)
The Toronto-Dominion Bank (TSX:TD)(NYSE:TD)
Shares in The Toronto-Dominion Bank (TSX:TD)(NYSE:TD) are down -13% over the past year, and that meant that TD is currently underperforming the TSX Composite benchmark, along with all four of Canada’s other major banks.
But the TD Bank of today has a much stronger orientation to the U.S. market than the TD Bank of the past or the rest of the Canadian big banks, and in light of the U.S. regional banks struggles over the past two years, perhaps underperformance on the part of TD’s shares shouldn’t come as so much of a surprise.
However, that underperformance has also put TD’s stock on the proverbial sale. Its shares now pay investors a 5.46% yield against a payout ratio just shy of 70%.
While that payout ratio is above management’s target range of 40-50%, it’s still well below what most investors would consider too dangerous to be investable.
With a 167-year track record of continuously maintaining its dividend, one can only imagine that TD’s current board of directors do not want to be the ones holding the bag if, or when, that streak finally comes to an end.
Suppose management can get things back on track, return the company to its former self, and regain annual earnings growth of 7-10%, in line with its stated targets. In that case, investors might look back in a year and see what a great buying opportunity shares at current levels represent.
Manulife Financial Corporation (TSX:MFC)(NYSE:MFC)
Manulife Financial Corporation (TSX:MFC)(NYSE:MFC), on the other hand, has been one of this year’s best-performing Canadian stocks for investors, with gains of 47% over the past calendar year and the shares up more than 24% year-to-date so far in 2024.
Despite that outperformance, MFC stock continues to trade at a price-to-earnings multiple in the single digits with a dividend yield of 4.39% and a payout ratio of 56%.
Over the past decade, Manulife and its management team have more than delivered on their plan to streamline the company into a more technology-centric business model. This has resulted in strong outperformance relative to their peers in the insurance industry in terms of returns on capital and new business generation, particularly in the Asia-Pacific market.
Management is taking things one step further by raising its forward guidance for the next three years. It is targeting 18% core returns on equity and 10-12% annual core earnings per share growth, in addition to generating $22 billion in cash remittances over the next three years, compared to $18.4 billion over the past three.
If MFC can deliver on those ambitions, investors ought to be licking their chops at the prospect of future dividend hikes, considering management’s 11% dividend increase in 2023 and plans to return excess capital to shareholders at last month’s investor day in Hong Kong.
Suncor Energy Inc. (TSX:SU)(NYSE:SU)
Despite falling slightly since the start of the summer season, shares in Suncor Energy Inc. (TSX:SU)(NYSE:SU) have largely outperformed in 2024, up 19% year-to-date. While this company does take a lot of heat for its role as an operator in the Canadian oil sands, it maintains a dominant position among Canada’s energy producers as the country’s largest oil and gasoil and gas company.
In 2020, the company decided to cut its dividend by a little more than half in light of threatening global demand from the pandemic-related lockdowns, but it has since raised its payout back to above pre-pandemic levels.
That’s an impressive feat considering that it wasn’t under any obligation to do so and speaks to the board of directors’ emphasis on maintaining a competitive dividend payout.
SU raised its dividend by another 4.8% earlier this year in 2024, and at current prices, the stock is now trading at a 4.22% dividend yield with a conservative payout ratio of only 33%.
That type of conservative fiscal management should give the board of directors plenty of flexibility moving forward, whether it decides to use excess capital to fund future growth projects, pursue share buybacks, or even make further improvements to its dividend profile by hiking the current payout or including a special one-time dividend.
Bottom line
While Canada’s new capital gains tax has received a lot of attention in the press lately, in many cases, dividends still receive preferential tax treatment for domiciled Canadian investors. Investors should consider the overall impact of dividends on their portfolios, including not only an investment’s current dividend yield but also its overall health and the prospect it leaves for future dividend growth.