It’s the beginning of 2020 and that means new TFSA contribution room. With the new $6,000 TFSA contribution room per person, it makes sense to invest in dividend paying stocks early in the year and stay invested rather than trying to time the market. Therefore, we have been busy putting together a 2020 dividend stock consideration list and monitoring these dividend paying stocks to determine whether it makes sense to pull the buy trigger. Without further ado, here’s our 2020 dividend stock consideration:
Table of Contents
Brookfield Property Partners (BPY or BPY.UN)
When I looked at our portfolio, our exposure to REITs have been slowly declining as we added stocks in the other sectors. Therefore, it would be nice to add some REITs to our portfolio. Brookfield Property Partners is a diversified global real estate company that owns, operates, and develops one of the largest portfolios of office, retail, multifamily, industrial, hospitality, triple net lease, self-storage, student housing, and manufactured housing assets. With nearly $200 billion in assets to manage, BPY owns and manages some great real estate properties around the world. According to BPY’s website, the company’s investment objective is to generate attractive long-term return on equity of 12-15% and annual distribution growth of 5-8%. Given BPY yields around 6.6%, the return on equity and dividend growth are both very attractive. BPY share price has stumbled a bit in the past year so it makes sense to start investing in this company, collect the juicy dividends, and wait for the price to appreciate.
Brookfield Renewable Partners (BEP or BEP.UN)
We purchased Brookfield Renewable Partners about 3 years ago and the stock price has appreciated nicely since then. The company has a renewable power portfolio of over 18,000 MW of capacity with 5,253 generating facilities (hydroelectric, wind, and solar) in North America, South America, Europe, and Asia. While spending Christmas and New Year’s in Denmark, I learned that the Danish wind farms met 47% of the Danish energy demand in 2019. Although we own quite a bit of pipeline stocks, I am a true believer in renewable energy. I’m optimistic that in the next decade and the decades after we will rely on hydroelectric, wind, and solar more and more. Therefore, I quite like what BEP is doing and want to invest money in the renewable sector.
Just like Brookfield Property Partners, Brookfield Renewable Partners has an investment objective of delivering long-term annualized total returns of 12-15% and growing its annual distribution by 5-9%. At an initial yield of around 4.6%, I believe it makes sense to add more shares to our existing position.
TD Bank (TD.TO or TD)
At the current valuation of 11.8 PE ratio, 11.87 price to earnings ratio, and 1.64 price to book ratio, TD Bank is simply too cheap to ignore. I continue to like TD since the company is a major player in the Canadian retail banking sectors. Since the financial crisis, TD has been slowly acquiring companies in the states to increase its exposure in the US. In fiscal 2019, the US business contributed nearly $5 billion of the total $12.5 billion net income. This means that TD is now a major retail bank in the US too.
Why do I like banking generally? First of all, it’s very rare for people to switch their banks. Once people open a bank account with a financial institution, they typically stay with that institution. They tend to use other financial services from the same financial institution as well. Take myself as an example, I opened a chequing account with TD when I was a teenager. Since then, I have opened a TFSA, RESP, and a taxable trading account with TD. I also had a few credit cards from TD. Although we use a credit union for the day-to-day banking nowadays, I still use TD because of all the investment accounts I have.
Secondly, it is quite easy for banks like TD to improve its revenues by increasing fees and changing rules to its services. Recently, I received an email from TD informing that their Value Chequing account will be discontinued and TD will move me to the Minimum Chequing account. In the email, TD also informed me that they will no longer provide a monthly fee waiver if I meet the minimum monthly balance of $2,000 with the Minimum Chequing account. To avoid the monthly fee, I would have to move to the next level of chequing account, the Every Day Chequing account, and keep a minimum $3,000 monthly balance. By simply changing their products, TD is forcing me to keep another $1,000 in my chequing account. I’m sure many Canadians are in the same boat as me. Multiply the $1,000 by a few hundred or even a few thousand, and all of a sudden, TD has extra money on their hands to improve their revenues by lending or investing that money.
Invest in well-run banks!
Canadian Utilities (CU.TO)
With 48 years of dividend growth streak, Canadian Utilities is one of the two Canadian dividend-paying stocks that has a streak of over 40 years. Therefore, I am pretty certain that the dividends are pretty safe. At a dividend yield of around 4.3% and a 9.1% annualized dividend growth rate over the last 10 years, you are literally getting paid while you sleep.
CU is trading around a PE ratio of 11, with a price to book ratio of 2.7, and a payout ratio of around 48%. In the past five years, CU has been trading at ~20 PE ratio, so the current valuation is cheap, and it may make sense to add more shares.
Royal Bank (RY.TO or RY)
Like TD, I think Royal Bank’s current valuation means the stock is quite cheap. At a PE ratio of 12.2 and a dividend yield of 3.9%, it makes sense to add more RY shares into our dividend portfolio, collect the dividends, and wait for the stock price to appreciate. The life of a dividend growth investor can be pretty simple if you stick with the big five Canadian banks.
We already own Coca-Cola, so I have been wanting to add PepsiCo to our dividend portfolio to increase our exposure in the beverage industry for a number of years. PepsiCo has been trading at an average PE of 24.7 the last five years. So at the current PE ratio of 16.1, the stock’s valuation is at a historical low and finally fairly valued compared to its key competitor Coca-Cola (KO trades at 32 PE ratio currently). Just like Canadian Utilities, PEP has a long distribution increase streak. PEP has been increasing dividends for the last 47 years with a 10-year annualized growth rate of 8%, which is very impressive!
Adding PEP will not only increase our exposure in consumer staples but also will increase our international exposure as well. What’s not to like?
Inter Pipeline (IPL.TO)
We added Inter Pipeline throughout 2019, and we plan to do the same in 2020. I personally believe the stock price has been depressed due to various headwinds that the company has been facing over the last year. The company is working hard to fund the Heartland Petrochemical Complex, which I believe will be a significant future growth driver for IPL. As an investor, one thing to watch out for is IPL’s debt. Given that IPL offers a very juicy yield of around 7.6%, I can purchase IPL stocks and wait for its stock price to appreciate over time.
Canadian National Railway (CNI or CNR.TO)
Canadian National Railway is one of the major rail transportation companies in North America with approximately 24,000 railroaders transporting more than $250 billion worth of goods annually. Resource products, manufactured products, and consumer goods continue to be shipped via rails in North America, and Canadian National Railway will continue to grow its revenues as a result. Just how rail dependent are we? Well, the recent CN rail strike caused significant revenue loss to many companies that rely on CN to transport their goods and services across North America.
Although CNR only has a dividend yield of around 1.7%, it has an excellent dividend growth history. CNR has a 24-year dividend growth streak with a 10-year annualized dividend growth rate of 15.6%. Not to mention the stock price has been going up and up. The PE ratio is hovering above 20, so it is not a cheap stock.
As I went over CNR’s financial results and management messages, I saw that the management aims to continue to reduce its fuel costs and improve fuel efficiency. This will help CNR’s bottom line. In addition, crude-by-rail shipments are expected to continue to increase in 2020, so I expect CNR’s revenues to continue to grow, and as a result, continue to grow its dividends.
There you have it, the eight dividend-paying stocks mentioned above are my dividend stock consideration for 2020. It shouldn’t come as a surprise that some of these picks are from my list of top Canadian dividend stocks. I plan to monitor the stock price and add shares throughout 2020. Unless price for these stocks go bananas and jump significantly, I feel pretty comfortable doing lump sum purchases.
Dear readers, what do you think about my 2020 dividend stock consideration? What dividend paying stock are you monitoring?