3 Safe Dividend Stocks to Beat Inflation (2024)

Canadian stocks like Fortis Inc (TSX:FTS) offer relatively safe dividends.

Safe dividends are the holy grail of investing. What could be better than a regular cash flow that comes in quarter after quarter — and rises at a pace faster than inflation? It’s a winning proposition.

Unfortunately, dividends often aren’t as “safe” as they appear. In many cases, they get reduced or cut out entirely. There’s even a whole theory known as dividend irrelevance theory, which posits that dividends don’t increase returns at all.

The jury is out on the topic of whether dividends are relevant in the long run. Still, it’s undeniable that some companies offer safe and well-covered dividends you can count on. In this article, I will explore three Canadian dividend stocks that offer truly safe dividends that should keep you ahead of inflation.

Alimentation Couche-Tard

Alimentation Couche-Tard(TSX:ATD) is a Canadian convenience store company. In Canada, it is best known for the Circle K chain. It also manages the On The Run chain in the U.S. in a partnership with ExxonMobil as well as Statoil in Europe.

Alimentation Couche-Tard is both a convenience store operator and a fuel vendor. It makes money off of the sale of consumer discretionary goods inside its stores, as well as the fuel sold outside at the pumps. The company’s fuel segment made $1.4 billion in gross profit in the most recent quarter. Therefore, this company can be thought of as an energy stock of sorts. But because ATD sells other things apart from just fuel, it gives you energy (specifically gasoline and diesel) exposure in a more diversified package.

Circle K’s management has done a good job of expanding the franchise all across Canada. At the same time, the company hasn’t borrowed too much money in doing so. It has re-invested retained earnings rather than borrowing large sums of money. As a result, the company has a 1.1 debt-to-equity ratio and a clean balance sheet.

TD Bank

Toronto-Dominion Bank (TSX:TD) is a Canadian bank stock that is very cheap going by adjusted earnings (i.e., earnings calculated in the way the company thinks fit). The company’s price-to-earnings ratio, using adjusted earnings in the denominator, is almost exactly 10. This makes TD cheaper than the S&P 500 banks index, which trades at about 13.7 times earnings. It’s also cheaper than most individual banks I’m aware of.

The reason why TD Bank is so cheap is because it’s dealing with the lingering after-effects of a failed acquisition, which is still costing the bank money to this day. It’s also under investigation for money laundering in the United States; it may be fined several hundred million dollars if it gets charged. The expected impact of any money-laundering fines is relatively small as a percentage of TD’s net income, and the accusations only involve one employee in New Jersey. I’d say TD will be fine.

Fortis

Fortis (TSX:FTS) is a Canadian utility stock that has raised its dividend every single year for 50 consecutive years. It has a 4.4% dividend yield today, yet only a 70% payout ratio (i.e., dividends divided by profit).

Fortis is sometimes thought of as a bond alternative. Its money comes from peoples’ electrical bills, a recurring expense that most people just take as a given. This makes Fortis’s top-line performance very predictable and reliable. Its dividends have also been very reliable. Investors who bought Fortis in the past were well rewarded, and it still has its winning characteristics today.