2020 Dividend Stock Consideration

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:

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. 

PepsiCo (PEP)

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. 

Summary

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? 

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14 thoughts on “2020 Dividend Stock Consideration”

  1. hey Bob

    Nice list! I own 6 of them. (Don’t own royal or pepsi yet)

    I have been a big fan of bpy but that recent .7% dividend raise was pretty low.. It definitely makes me question that mall exposure at the moment. Although they plan to build residential on the malls which should be huge in the future.

    The cdn banks surely seem cheap at the moment.

    Cnr is probably my favourite stock I own. Its currently 5% of the portfolio but once it drops to 4.9% ill buy another tranche. Their moat and div growth are just too good to pass up.

    Ipl seems alright, those pipes are awesome and heartland seems to be staying on schedule and budget. This will be a solid catalyst once its finished.

    Again great list, look forward to seeing what you decide to buy.
    cheers Bob!

    Reply
    • I think brick and mortar stores aren’t going away anytime soon. Look at Walmart and Target. People think they’d face significant headwind against Amazon but both brands still continue to do relatively well.

      CNR is a great company, we plan to continue to add.

      Reply
  2. Hey Bob,

    Looks like a great list of potential additions to your portfolio. Maxing out the TFSA is a great idea early on and take advantage of compounding.

    I should be able to max out my TFSA by end of March. Waiting for my tax refund to distribute capital between my investment accounts and then allocate to my ETFs

    -DGX Capital

    Reply
  3. Great list Bob, I currently own five of the stocks you mentioned. Stocks I’m looking at this year are CNR, IPL, BEP, CAR.UN, NFI and ERE.UN. I would love to add TD but that would be my fifth bank not sure if that is too many.

    Thanks I look forward to seeing what you buy.

    Reply
  4. Great list, I’ve been looking at CNR and adding more bank (but just to the two I have, BMO and NA). Good point about people not switching. I’ve been with BMO since a child and I still bank with BMO now.

    Reply
  5. Great picks. i own some of them. Only one I could not stomach is Pepsi. I don’t think I can keep my emotions from impacting my decisions on this company. They offer no products of value to human life pretty much. Couldn’t ethically support such a life sucking corporation.

    Reply
    • Interesting comment… however, when it comes to investing, we need to remove emotions from time to time. Given that some people are highly dependent on Pepsi products on a daily basis, the business side of me think Pepsi is a good company to invest in.

      Reply
  6. TD, RY are two of my biggest holdings. I have substantial cn and cu as well.
    I have little ipl. In fact, I sold enb and will be selling ipl once prices return to more reasonable level. Both enb and ipl no longer fits my investment philosophy. Too much debt and eps doesn’t cover dividend payout.

    Reply

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