Watch List
It’s time to get back to investing basics and look at some Canadian dividend stocks. Speculative, high-PE has fallen out of fashion as interest rates start to climb. The barbaric Russian invasion of Ukraine has thrust oil stocks into the spotlight. Precious metals, fertilizer and natural gas stocks are also soaring. These sectors are obvious calls, so I won’t explore them here.
Instead, in these volatile times it’s prudent to seek stocks that are reliable, steady and pay a dividend.
Great West Lifeco (GWO-T)
Any Canadian insurer will pay a decent, reliable dividend. However, the problem with Manulife is that it never climbs above $28 while the street already lauds Sun Life. Getting less attention is GWL .
True, insurance isn’t as exciting as EV’s or the metaverse, but, hey, everybody buys insurance. For this reason, GWL as a Canadian dividend stock is highly defensive. Also, it trades at a low 10.76x PE, boasts a stable 0.84 beta, and pays a fat 5.35% dividend (based on a payout ratio of 53.61%). And yes, rising rates will help the company.
The company is on a winning streak, beating its last four earnings. The street has four holds on GWL, but expects 16% upside to $42.50.
North West Company (NWC-T)
This Winnipeg-based consumer defensive Canadian dividend stock flies under the radar of many, but it shouldn’t. NWC stock operates convenience stores in the Arctic, Alaska, South Pacific and Caribbean. Given these remote locations, NWC faces little competition, so it has a decent moat around its business. NWC stock pays a dividend of 3.93% based on a 46.1% payout ratio.
It’s handily beaten its last four quarter. EPS growth in the past year clocked in at 22.7% and surpasses the industry average. NWC trades at a cheap 12.2x PE and boasts some of the highest margins in the grocery business: gross margin at 33.1%, profit margin of 6.92% with a high ROE of 29.85% and ROI of 17.23%.
Since I last recommended it on July 15, 2020, NWC shares have risen 20.9%. The one knock against NWC is that it’s enjoyed a pretty good run, so the coming year may perform less impressively than the last. The street has four holds on this name and forecasts only 4.14% upside to $39.25. However, if you want safety, NWC stock is it.
BMO Canadian Dividend ETF (ZDV-T)
Enbridge, Royal Bank, the Bank of Nova Scotia, BCE, TD, CIBC, Telus, BMO and CNR comprise the top holdings in this Canadian dividend stock ETF. By sector, ZDV holds nearly 40% banks, 13% utilities, 13% energy and 11.8% communication services. ZDV pays a 3.74% dividend and charges a reasonable 0.39% MER. In the past 12 months, ZDV has gained 24% which is 3.5% lower than Enbridge, but 1.5% better than TD. ZDV’s daily volumes average 104,000 while the beta stands at a safe 0.8. This ETF’s holdings trade at a PE of 15.14x.
Though no one can predict what Russia will do against Ukraine and the invasion’s effect on the market, it’s unfortunately safe to predict that commodity prices will remain high and continue to climb for the immediate future. This positions the Canadian market better than the American one, which is less concentrated in oil and precious metals.
Some may ask about another BMO Canadian dividend ETF, ZWC which employs a covered call strategy. To paraphrase the ETF expect, Larry Berman, covered calls work best when the market is flat or slightly negative. This is not the case now with the TSX, which is diverging sharply (higher) from the American indices, due to the amount of commodities in the Toronto index. For the year so far, the ZDV is up 7%, but ZWC has gained only 4%. Stick with ZDV.
