One of the most important factors to consider when analyzing Canadian dividend stocks is their underlying business, defensiveness and the risk of each investment, especially if we were to hit an economic downturn.
However, another measure used to assess the stability of a dividend and the degree of risk it carries is the value of a share. The payout ratio.
A payout ratio basically shows how much money a company pays back to investors out of all the profits it has generated. Other uses for this money could include paying down debt or investing in growth.
And, of course, there is always the fear that a company’s income could drop year after year. So, without a safe payout ratio and adequate cash, companies could end up cutting their dividends, devastating the stock price.
With that in mind, and with all the uncertainty surrounding the economy and the stock market these days, here are two top Canadian dividend-paying stocks that have ultra-safe payout ratios.
An incredibly cheap stock offering a large dividend
One of the first Canadian dividend stocks to consider today is one that has been cheap for some time, Corus Entertainment (TSX:CJR.B). However, although the stock is cheap and many investors avoid it while it is in recovery mode, the cash flow it generates is incredible, which is why its dividend is so secure.
Corus derives the majority of its income and revenues from the sale of television advertising. This is an industry that is not completely affected by recessions, but certainly suffers negative effects as economic growth slows.
Nonetheless, with the value Corus offers today and its dividend, which is currently yielding 6.7%, it is still one of the most attractive stocks to buy now.
Most Canadian stocks that offer dividend yields above 5% or 6% typically pay out the majority of their income. However, because Corus is so undervalued and is currently trading at just 4.5 times its forward earnings, its payout ratio is around 33%.
So even if Corus’ revenues were to be cut in half, there would still be more than enough to continue paying its dividend. If you’re looking for the best Canadian stocks to buy now to help boost your passive income, Corus is one of the best to consider.
A leading energy company earning tons of cash flow
As the energy industry has recovered from the pandemic and now has significant tailwinds following the Russian invasion of Ukraine, one of the best Canadian dividend-paying stocks to own has been Full ownership Royalty fee (TSX: FRU).
In less than two years, Freehold has increased its dividend seven times. As of December 2020, the stock was paying just $0.18 per share per year as a dividend. Today, Freehold pays more than $1 per share per year as the company has recovered quickly.
But because energy stocks are experiencing massive tailwinds right now, and ones that may not persist forever, management has been careful not to raise the dividend too quickly.
Right now, based on what Freehold is expected to earn in free cash flow this year, its dividend, which offers a whopping 7.5% dividend yield, has a payout ratio of just 65%.
Moreover, even next year, when many expect energy prices to come back down, it is still expected to have a payout ratio of around 50%.
Additionally, it should be noted that over the long term, Freehold aims to maintain its payout ratio between 60% and 80% of its operating funds.
So, if you’re looking for the best Canadian dividend stocks to buy now, Freehold’s strong yield and attractive business model that consistently earns tons of cash flow make it hard to ignore.