5 Moaty Canadian Dividend Stocks

These dividend stocks sustain cash payouts with a competitive advantage.

Andrew Willis 14 July, 2021 | 3:16AM
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Castle with Moat

It’s one thing to get a decent dividend, but it’s another to get a lasting dividend – and yet another to get one that grows. There are stocks out there that tick all the boxes, right here in Canada.

There’s five household names, that are established entities that can do what they do with dividends in part thanks to a competitive edge that’s significant, stable and often growing. This is called an ‘Economic Moat’. An important thing to note is that none of these stocks are ‘cheap’. They’re all trading at or above our fair value estimates.

That said, what do these ‘moaty yielders’ look like?


Expected Dividend Yield

Moat Rating

Star Rating

Royal Bank of Canada (RY)




The Toronto-Dominion Bank (TD)




Bank of Nova Scotia (BNS)




Suncor Energy Inc (SU)




Canadian Pacific Railway (CP)




Source: Morningstar Direct, as of July 5th, 2021

Banking on Dividend Growth

“Royal Bank of Canada (RY) is one of the two largest banks in Canada by assets and one of six that collectively hold roughly 90% of the nation's banking deposits,” notes senior equity analyst Eric Compton. All three banks that top these dividend charts are party to a near-monopoly that hasn’t cut dividends in 10 years.

The moats of these sector leaders are supporting by a Canadian banking system and regulations that create high barriers to entry – which limits competition, stabilizes product pricing and gives consumers less incentive to switch banks.

For RBC, Compton sees sustained success in the Canadian banking space, with “exceptional” revenue in its capital markets segment recently, and growing lines of business in the U.S. and the Caribbean that together make up roughly a third of revenue. “We like RBC's growth strategy in the U.S. through City National, focusing on wealth and commercial clients. We believe this is a much more focused strategy than its previous attempts at growth in the U.S. and it should pay dividends,” adds Compton.

Of the three banks paying dividends, the greatest growth in payouts has been with Toronto-Dominion Bank (TD) coming in at 9.2% over the past five years as of July 5, 2021, compared to 6.9% and 5.8% for RBC and Scotiabank, respectively. TD Bank, like RBC, has a wide moat, however by contrast its most recent earnings were, as described by Compton, “okay”.

“The bank experienced a revenue decline of 3% while peers saw growth,” says Compton, while also noting that segments such as its credit card portfolio “should be set for a bigger bounce back once card volumes begin to return and if rates ever go up again.” Being the number-one card issuer and with roughly $360 billion in Canadian assets under management as a top-three dealer in Canada, “Toronto-Dominion should remain one of the dominant Canadian banks for years to come,” he adds.

In third place for competitive income – and assets – we have Bank of Nova Scotia (BNS). Of the three, Scotiabank is known as Canada’s most international bank, with over 40% of revenue from international operations (primarily Latin America, namely Mexico, Peru, and Chile), and a single-digit percentage from the United States.

“The international exposure gives the bank the potential for higher growth and return opportunities compared with peers, but it also exposes the bank to more risks,” says Compton. These risks also contribute to a narrow moat. “We calculate the international segment earns returns on equity only slightly above the 11% average cost of equity we assign to that segment,” according to Compton.

In Canada, their operations are more concentrated in mortgages and auto lending, with a leading market share in the auto lending space, says Compton, and when looked at as a whole, Scotiabank has some of the best historical total bank efficiency and moaty nonbank businesses.

Railroads and Oil

Another sector that operates as an oligopoly is the oil business, and its sturdy dividend stock is Suncor Energy. Suncor (SU) is one of Canada’s leading integrated energy companies and it leads the pack here for dividend growth over the last five years at 35.4% as of July 5, 2021.

Suncor did trim its dividends down from 5.13% in 2020 and nearly 4% in 2019, but we see the company as having a wide moat in a high capital-intensive business. With its operations primarily focused on the development and production of the Athabasca oil sands, “the company’s future oil sands products could drive significant growth in a better oil price environment,” says sector director Dave Meats.

Lastly, with likely the least amount of competition in the trans-continental rail segment, we have Canadian Pacific Railway (CP). “In our view, each of the North American Class I railroads we cover, including Canadian Pacific, enjoys a wide economic moat rooted in cost advantages and efficient scale,” says equity analyst Matthew Young.

Railroads can’t be beaten for cost. “While barges, ocean liners, aircraft, and trucks also haul freight, railroads are by far the low-cost option where no waterway connects the origin and destination,” says Young.

With such a competitive advantage, it may come as a surprise to some investors that CP Rail’s expected dividend yield is only 0.80%, but it’s worth considering the company’s buyback yield, which sits around 1.83% and averaged 2.74% over the past five years as of July 5, 2021. In the past five years, the company has also averaged a 20.5% growth in dividends – and boasts the greatest dividend coverage by earnings and operating cash flow of the companies featured today, suggesting this could be one sturdy Canadian dividend stock. 


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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Bank of Nova Scotia64.06 CAD-0.16Rating
Canadian Pacific Kansas City Ltd114.99 CAD0.18Rating
Royal Bank of Canada153.56 CAD0.60Rating
Suncor Energy Inc53.31 CAD0.87
The Toronto-Dominion Bank80.02 CAD0.76Rating

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar Canada. He previously produced content for Fidelity Investments and finance industry events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @Andrew_M_Willis.

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