CSU:CC - Should You Buy the 3 Highest-Paying Dividend Stocks in the TSX Composite?

2024-07-26 16:10:00 ET

One item that investors tend to focus a bit too much on with dividend stocks is the dividend yield. While that is certainly important, returns and the dividend itself are just as concerning. If you’re not gaining returns, why are you investing? If the dividend isn’t stable and growing, what is it really worth to you?

That is why today, we’re looking at companies that have offered more over the years. Both in terms of returns and dividends. So, let’s get into why investors should consider Fairfax Financial Holdings ( TSX:FFH ), Constellation Software ( TSX:CSU ), and Canadian Tire ( TSX:CTC.A ) today.

Fairfax

Fairfax currently offers a whopping $20.29 annual dividend. It operates a diverse portfolio, primarily engaged in property and casualty insurance and reinsurance, but also extends to investment management. Furthermore, Fairfax’s conservative approach to its investment portfolio is another strength. The company has a substantial portion of its fixed-income portfolio in government bonds (70%) and high-quality corporate bonds (20%), primarily short-dated.

Fairfax recently reported mixed earnings for the first quarter (Q1) of 2024. The company posted earnings per share (EPS) of $41.54, which fell short of the consensus estimate of $55.05. Despite this, Fairfax maintained robust revenue of $10.36 billion. Fairfax’s investment portfolio showed a net loss on bonds but gained significantly from equity exposures.

The company’s strong financial positioning, with a book value per share increasing to $945.44 and a conservative fixed-income portfolio, indicates stability. The recent repurchase of shares and issuance of senior notes also reflect management’s confidence in its financial health. So, while Fairfax missed earnings expectations, its solid fundamentals and strategic investments make it a viable option for dividend-seeking investors, especially given its historical performance and financial stability.

Constellation Software

Constellation Software continues to impress with its consistent growth and strategic acquisitions. The company focuses on acquiring, managing, and building vertical market software businesses. CSU’s recent earnings showed strong revenue growth and robust cash flow, which support its high dividend payouts. The company’s strategic acquisitions have bolstered its market position, and its conservative financial management has kept debt levels manageable.

Constellation’s earnings are coming up Aug. 9. However, last quarter’s were strong. Constellation Software reported its Q1 2024 earnings on May 10th. The company achieved an EPS of $37.21, significantly surpassing the consensus estimate of $23.21. This notable earnings beat was driven by robust revenue of $3.17 billion, up from $2.4 billion in the same quarter last year, marking a 23% increase. The revenue growth was primarily fuelled by acquisitions, with organic growth contributing 4%?

Constellation’s track record of sustainable growth, combined with its high dividend, makes it an attractive option for long-term dividend investors looking for stable returns, especially with a dividend of $5.45 annually.

Canadian Tire

Finally, Canadian Tire is a well-known retail giant in Canada that has shown resilience and adaptability in a competitive market. Its recent earnings revealed strong sales growth across various segments, particularly in its automotive and sporting goods departments. The company’s ability to leverage its extensive retail network and brand loyalty has contributed to its robust financial performance.

Again, earnings are coming up. However, back in May, it reported strong earnings for the quarter. The company posted an EPS of $1.38, significantly surpassing the consensus estimate of $0.79 by $0.59. Total revenue for the quarter was $3.52 billion, compared to $3.71 billion in the same period last year, reflecting a 4.9% decline. Still, it’s a resilient company that’s bound to recover quickly — as it has in the past.

Canadian Tire has maintained a solid dividend payout, supported by its strong cash flow and diversified business model. The company’s focus on e-commerce and enhancing customer experience positions it well for future growth, making it a compelling option for investors seeking high dividends from a stable and reputable company. So, as Canadian Tire offers a whopping $7 annual dividend yield, it also deserves your attention.

Conclusion

Fairfax Financial, Constellation Software, and Canadian Tire all present strong cases for dividend investors. Fairfax offers a mix of stability and growth potential through its diversified investments, despite recent earnings misses. Constellation Software’s consistent growth and strategic acquisitions make it a reliable dividend payer. Canadian Tire’s robust retail performance and strategic initiatives provide a solid foundation for continued high dividends.

The post Should You Buy the 3 Highest-Paying Dividend Stocks in the TSX Composite? appeared first on The Motley Fool Canada .

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Fairfax Financial. The Motley Fool recommends Constellation Software. The Motley Fool has a disclosure policy .

2024