Canada's Best Dividend Stocks 2016: All-Stars

The All-Star Leaders

Three big banks got top marks last year and did so again this year. They are the Bank of Nova Scotia, the Bank of Montreal and TD Bank, which offer yields of 4.2%, 4.0% and 3.8%, respectively. They are joined by CIBC, which gained a grade level this year and provides a 4.7% yield.

All of the banks generate more income via their dividend yields than they offer on their “high interest” savings accounts, albeit with more risk. After all, recent revelations of lending practices in the nation’s real estate sector should be of concern to bank shareholders. It’s a big reason why wise investors diversify broadly.

Insurance firms Great-West Lifeco and Sun Life Financial made it to the top of the class again with yields of 4.4% and 3.9%, respectively. The same is true of Genworth MI Canada, which provides mortgage insurance and a hefty yield of 4.9%. Worries about the real estate market weigh on the stock, which trades at nine times earnings and 88% of book value. A housing crash would put it to the test.

Sort through and learn more about the A-grade stocks in the chart below.

The B Team

Just a step behind, the B-list starts with Royal Bank and National Bank with yields of 4.1% and 4.7%, respectively. They’re joined by insurance firms Industrial Alliance Insurance and Manulife Financial. Both are returning B-graders, as is asset manager IGM Financial, which offers the highest yield of the bunch at 6.2%.

Financial conglomerate Power Corp. of Canada rounds out the B-team’s list of financials. The firm slipped a grade this year, but still provides a hefty 4.8% yield and trades near book value. It also owns stakes in highly-rated Great-West Lifeco, IGM Financial, and Power Financial.

The B-list continues with auto-parts firms Linamar and Magna, which offer relatively modest yields, strong dividend growth and low price-to-earnings ratios of seven and eight, respectively. Keeping with the transportation theme, WestJet picked up a B and has delivered top-notch dividend growth over the last five years.

Electric utility Fortis and Shaw Communications round out the team. Fortis is a little expensive at 21 times earnings while Shaw is relatively cheap at just under 10 times earnings.

Sort through and learn more about the B-grade stocks in the chart below.

Name	Name	Ticker	Industry	Price (Sept 1, 2016)	Price (Sept 1, 2016)	Market Cap ($M)	Dividend Yield	Dividend Yield	Dividend Growth (5Yr Avg)	Price/ Earnings	Dividends/ Earnings	Debt/ Equity	Price/ Cash Flow	Price/ Book	One-Year Total Return	Five-Year Total Return	Grade	Grade
Bank of Montreal	Bank of Montreal	BMO	Banking	$87.02	$87.02	$56,116	4.0%	4.0%	3.7%	12.89	51%	201%	9.96	1.50	32.1%	78.3%	A	A
Bank of Nova Scotia	Bank of Nova Scotia	BNS	Banking	$70.08	$70.08	$84,434	4.2%	4.2%	7.1%	12.32	52%	221%	5.57	1.66	26.2%	59.3%	A	A
CIBC	CIBC	CM	Banking	$104.12	$104.12	$41,118	4.7%	4.7%	6.0%	10.08	47%	103%	6.78	1.91	15.6%	72.4%	A	A
Genworth MI Canada	Genworth MI Canada	MIC	Insurance	$33.99	$33.99	$3,122	4.9%	4.9%	10.1%	8.58	42%	12%	5.41	0.88	22.8%	104.3%	A	A
Great-West Lifeco	Great-West Lifeco	GWO	Insurance	$31.44	$31.44	$31,216	4.4%	4.4%	2.1%	11.59	51%	22%	5.41	1.65	-1.0%	79.4%	A	A
Sun Life Financial	Sun Life Financial	SLF	Insurance	$41.29	$41.29	$25,304	3.9%	3.9%	2.0%	12.40	49%	20%	5.43	1.36	5.2%	97.1%	A	A
TD Bank	TD Bank	TD	Banking	$58.67	$58.67	$108,864	3.8%	3.8%	10.8%	13.21	50%	158%	-	1.65	19.2%	79.5%	A	A
Fortis	Fortis	FTS	Utilities	$41.54	$41.54	$11,817	3.6%	3.6%	5.5%	21.09	76%	119%	6.94	1.47	22.3%	53.6%	B	B
IGM Financial	IGM Financial	IGM	Asset Management	$36.25	$36.25	$8,718	6.2%	6.2%	1.9%	12.37	77%	28%	14.13	1.96	8.8%	7.1%	B	B
Industrial Alliance Insurance	Industrial Alliance Insurance	IAG	Insurance	$46.87	$46.87	$4,809	2.7%	2.7%	4.8%	13.51	37%	20%	6.93	1.25	20.1%	56.3%	B	B
Linamar	Linamar	LNR	Automotive	$53.84	$53.84	$3,510	0.7%	0.7%	5.9%	7.22	5%	74%	4.52	1.47	-18.2%	276.5%	B	B
Magna International	Magna International	MG	Automotive	$52.65	$52.65	$20,483	2.5%	2.5%	14.9%	7.62	19%	33%	6.14	1.64	-13.8%	223.2%	B	B
Manulife Financial	Manulife Financial	MFC	Insurance	$17.86	$17.86	$35,236	4.1%	4.1%	6.9%	14.17	59%	76%	2.98	0.92	-8.6%	61.4%	B	B
National Bank of Canada	National Bank of Canada	NA	Banking	$46.57	$46.57	$15,726	4.7%	4.7%	10.2%	13.38	63%	310%	1.47	1.64	15.8%	58.7%	B	B
Power Corp of Canada	Power Corp of Canada	POW	Insurance	$27.68	$27.68	$12,822	4.8%	4.8%	1.8%	11.31	55%	23%	2.08	1.05	3.1%	46.0%	B	B
Royal Bank of Canada	Royal Bank of Canada	RY	Banking	$81.46	$81.46	$120,975	4.1%	4.1%	9.4%	11.84	48%	250%	5.51	1.93	19.1%	103.0%	B	B
Shaw Communications	Shaw Communications	SJR.B	Media	$26.38	$26.38	$12,943	4.5%	4.5%	5.7%	9.56	43%	90%	7.64	2.14	6.4%	52.0%	B	B
WestJet Airlines	WestJet Airlines	WJA	Passenger Transportation	$24.45	$24.45	$2,931	2.3%	2.3%	30.1%	10.45	24%	102%	3.75	1.49	6.6%	90.9%	B	B

A Caveat

Use our grades as the starting point for your own research. Before buying any stock, make sure its situation hasn’t changed in an important way and that it’s right for your portfolio. Read the firm’s latest press releases and regulatory filings. Scan the news to make sure you’re aware of important developments.

Look beyond the grades and think about the unique or intangible features of each company. Such factors can be beneficial, like a recent technological development. But they can also be detrimental, like the sudden arrival of new competition. Similarly, we’re in an aging bull market, which means that you should be prepared for storm clouds on the horizon.

While we’re pleased with our long-term track record, we can’t guarantee that you’ll make a fortune with every A- or B-rated stock. The market is just too wild and woolly for that. Nonetheless, we do think they deserve your attention and further research.

Norm Rothery, CFA, PhD, is the founder of StingyInvestor.com and tweets as @NormanRothery. He may hold some of the securities mentioned in this article.