Are Canada’s Dividend Kings Still Great Buys in 2024?

Looking for stable Canadian stocks? that provide consistent income? Canadian Dividend Kings might be just what you need. 

These elite companies have demonstrated remarkable reliability by increasing their dividends for over 50 consecutive years. They are the pinnacle of dividend growth stocks, and have been some of the best Canadian dividend stocks for many years.

The only difficulty? There is only two of them. But don’t let that deter you.

Both of these companies operate in the utilities sector, providing essential services that remain in demand regardless of economic conditions.

When you invest in these Dividend Kings, you’re not just buying into companies with impressive dividend track records. 

You’re also gaining exposure to well-established businesses with strong growth potential and stable cash flows.

How does a company become a Dividend King?

To qualify as a Dividend King in Canada, a company must meet stringent criteria. The primary requirement is a track record of increasing dividends for at least 50 consecutive years. This feat is incredibly rare, with only two Canadian companies currently holding this title: Fortis and Canadian Utilities.

These firms operate in stable industries, typically utilities or infrastructure, which provide essential services. Their business models generate steady cash flows, enabling them to maintain and grow dividends even during economic downturns.

Key characteristics of Dividend Kings include:

  • Strong balance sheets
  • Consistent revenue growth
  • manageable payout ratios
  • Diversified operations

What is the difference between a Dividend Aristocrat and King?

While Dividend Kings are the crème de la crème, Canadian Dividend Aristocrats also offer attractive dividend growth prospects. The main difference lies in the length of dividend increase streaks.

Canadian Dividend Aristocrats must increase their dividends for at least 5 consecutive years, a much lower threshold than Dividend Kings. This broader category includes more companies across various sectors.

In addition to this, a company can remain a Dividend Aristocrat if it doesn’t raise its dividend in a single year. As long as they return to dividend growth the next year, the streak will remain in tact. This is not the same for Dividend Kings.

Canada’s two Dividend King stocks

  • Fortis (TSE:FTS)
  • Canadian Utilities (TSE:CU)

Fortis (TSE:FTS)

Fortis dividend

Fortis (TSE:FTS) is a prominent Canadian utility company with an impressive dividend history. 

Fortis operates regulated electric and gas utilities in Canada, the United States, and the Caribbean. The company serves over 3.4 million customers through its 10 utility operations. 

Its assets include electric transmission and distribution systems, natural gas distribution networks, and power generation facilities.

Fortis has a significant presence in various regions, including:

  • Newfoundland and Labrador
  • Prince Edward Island
  • Ontario
  • Alberta
  • British Columbia
  • Arizona
  • New York
  • The Caribbean

The company’s business model centres on providing regulated utilities, which is one of the most reliable business models available today. 

Fortis owns the utility poles, the cables, the means of generation, pretty much everything leading up to your meter box. This makes competition relatively non-existent.

This approach has allowed Fortis to maintain consistent growth and dividend increases over the years, and it is very likely to continue providing them.

Fortis’s dividend

Fortis has recently achieved the coveted status of Dividend King, having increased its dividend for 50 consecutive years. This remarkable achievement highlights the company’s commitment to shareholder returns and reliability when it comes to earnings.

Fortis typically offers a dividend yield in the 4% range. While this yield is lower than some utilities, it’s important to note that Fortis maintains a healthy dividend payout ratio of 73.98%. This ratio suggests that the dividend is sustainable and leaves room for future growth.

Fortis typically pays dividends quarterly. The company’s consistent dividend growth has made it a favourite among income-focused investors seeking reliable cash flow from their portfolios.

Is Fortis a strong option right now?

Fortis presents a compelling option for investors seeking stable income and moderate growth. It is one of the best dividend stocks on the Toronto Stock Exchange, and should see some added tailwinds from declining interest rates. 

The company’s regulated utility business provides a degree of predictability, which can be attractive during uncertain economic times.

Key factors to consider:

  • Long-term growth plan: Fortis has a $22.3 billion capital investment plan through 2027, which should allow it to increase its rate base, fueling earnings and dividend growth
  • Geographic diversification: Operations across North America reduce regional risks
  • Stable regulatory environment: Most of Fortis’s assets operate under regulated frameworks that nearly guarantee profits

Despite these strengths, it’s crucial to consider potential challenges for a utility company like Fortis:

  • Interest rate sensitivity: Utility stocks can be affected by rising interest rates. We’ve witnessed this recently in a post-COVID environment
  • Regulatory changes: Shifts in energy policies could impact future growth

Canadian Utilities (TSE:CU)

Best Canadian Dividend Stocks 2019 - #13 Canadian Utilities

Canadian Utilities (TSE:CU) is a prominent player in Canada’s utility sector, known for its consistent dividend growth. However, its share price leaves a lot to be desired.

Canadian Utilities is a diversified energy infrastructure company. It operates in three main segments: Electricity, Natural Gas, and Retail Energy. 

The Electricity segment includes power generation, transmission, and distribution. Natural Gas covers pipelines, storage, and processing facilities. Retail Energy provides electricity and natural gas to consumers.

The company has a significant presence in Alberta and serves customers across Canada and internationally. Canadian Utilities owns and operates over 87,000 kilometres of electric power lines and more than 64,000 kilometres of pipelines.

Canadian Utilities also invests in renewable energy projects, including solar and hydroelectric power. This diversification is something that could possibly get the company out of the rut it’s been share price wise.

Canadian Utilities dividend

Canadian Utilities has an impressive dividend history, having increased its dividend for over 51 consecutive years. It was the first company to ever hit Dividend King status in Canada, a noteworthy achievement.

Canadian Utilities typically pays out in the 5% range, and its payout ratio has typically hovered in the 50%-60% range. However, due to a bit of operational struggles, it currently sits north of 80%. So while still covered, it is something investors need to keep an eye on.

The company has maintained a steady dividend growth rate. Over the past decade, Canadian Utilities has achieved a compound annual growth rate (CAGR) of 6.3% for its dividend.

Is Canadian Utilities a strong option right now?

Canadian Utilities presents a mixed picture for investors. Its consistent dividend growth makes it attractive for income-focused portfolios. The company’s diversified operations in essential services provide stability and predictable cash flows.

However, Canadian Utilities’ share price performance has been less impressive. Over the past decade, the stock has underperformed extensively. This lacklustre price appreciation may concern investors looking for both income and capital gains.

The utility sector faces challenges from higher interest rates and the transition to renewable energy. Canadian Utilities is adapting by investing in clean energy projects, but this transition may impact short-term profitability.

Overall, I’m a much larger fan of Fortis than I am Canadian Utilities.

What is Canada’s next closest Dividend King?

Although we don’t have any other company remotely close to becoming a Dividend King, I figure I’d speak on the next closest.

Toromont Industries (TSE:TIH) is poised to become Canada’s next Dividend King. This industrial equipment dealer has been consistently increasing its dividends for over 34 years.

Toromont’s business model focuses on two main segments:

  1. Equipment Group (Caterpillar dealership)
  2. CIMCO (refrigeration systems)

The company’s growth strategy has proven successful. It has steady revenue growth and a strong market position in Eastern Canada and Manitoba.

Toromont’s dividend growth record is impressive:

  • Current streak: 34 years of consecutive increases
  • 5-year dividend growth rate: 12.5%
  • 10-year dividend growth rate: 11.8%

As a cyclical business, Toromont has demonstrated resilience through various economic cycles. Its diversified operations and strong balance sheet contribute to its ability to maintain and grow dividends.

You might consider adding Toromont Industries to your portfolio if you’re looking for a company with a solid dividend growth history and potential for future increases.