Top 10 Canadian Dividend Stocks: Loaded with Financials

The Dow Jones Canada Select Dividend Index represents 30 of the top dividend stocks in Canada. These stocks are selected to the index annually based on yield.

The index is up 29.04% year-to-date as of July 31, 2009 including reinvested dividends. Last year the index was down about 31%. The index's 10-year annualized return is 10.62%. One of the interesting features of this DJ Canada Select Dividend Index is that about 73% of the index is made up of financials. Telecom, utilities and energy form about 7% each.

The top 10 components of the index are:

• National Bank of Canada
• Bank of Montreal (BMO)
• Canadian Imperial Bank of Commerce (CM)
• Toronto-Dominion Bank (TD)
• IGM Financial Inc. (IGIFF.PK)
• Bank of Nova Scotia (BNS)
• Royal Bank of Canada (RY)
• Manitoba Telecom Services Inc. (MOBAF.PK)
• TMX Group Inc. (TMXGF.PK)
• Sun Life Financial Inc (SLF)

The only utility in the above list is telecom provider Manitoba Telecom Services Inc. Among the financials, all the large banks are on the list along with one life insurance company. SunLife Financial (SLF) has a dividend of 4.43%.

The five largest Canadian banks weathered the credit crisis well and have shown their strength with a strong rebound since the March lows. Their dividends range from 3.69% to 5.62%. One of the biggest advantages to holding Canadian bank stocks is that due to strict regulations and highly conservative business practices, they produce consistent profits year after year. Some even call these banks the "cash cows" of Canadian stocks due to their dividend payments.

Another point is that these banks and insurance companies such as Manulife, Sun Life, etc. are in many of the mutual fund portfolios held by Canadians through their 401(k) equivalents for retirement savings called RRSP accounts.

While it's true that these banks took some unwanted risks through the use of derivatives in recent years, they have written-down most of the losses at this point. Unlike in the US, the housing market in Canada has held up relatively well and consumer debt such as credit card debt is not a huge problem due to strict underwriting standards. None of the banks in Canada are in serious risk of collapse, unlike some of the US's largest banks.

Disclosure: Long all five banks mentioned.

Comments

[john s. gordon:]

nondeductibility of mortgage interest (taxwise) in canada has limited the number of mcmansions that have been built, so there are fewer overextended homeowners.
> jack

Aug 18 09:30 AM

[Gary White:]

Some stocks on the TSX have pretty high dividend yields:

www.TopDividendYields.com

Aug 18 10:06 AM

[gmwright:]

Why would you be long on all five banks? In my opinion some are clearly superior to others (RY and BMO being my favourites) and while being invested in all five is safer I suppose (from a scandal or meltdown at one particular bank, if the Canadian system gets screwed for some reason they will all be going down together), it also dilutes you down towards the lowest common denominator.

My favourite is RY and it is truly a cash cow. I recently sold my position since I am in a very beneficial capital gains situation currently but I will re-purchase (and reset the gains) in the autumn.

Aug 18 10:43 AM