We recently compiled a list of the 10 Best Canadian Dividend Stocks to Buy For Income Investors. In this article, we are going to take a look at where Imperial Oil Limited (NYSE:IMO) stands against the other Canadian dividend stocks.

Dividend stocks are favored by investors not only in the US but also internationally. Canadian dividend companies, known for their robust cash flows, steady dividends, and solid balance sheets, have been particularly popular. However, these stocks lost some appeal in recent years as investors shifted their focus to other asset classes. According to the Canadian Imperial Bank of Commerce, there is now a renewed interest in Toronto’s dividend-paying stocks, which had been overlooked for over two years. This resurgence is expected to grow as short-term interest rates in Canada continue to decline. An analyst at the bank, Ian de Verteuil, noted in a research report that the shift back to high-yielding equities, such as utilities, REITs, and communications, is just beginning.

If interest rates continue to decline, the team anticipates that Canadian investors will redirect approximately $220 billion (US$161 billion) into dividend-paying stocks, moving away from fixed-income products. During periods of higher interest rates in Canada, dividend-paying equities were largely overlooked as investors sought better returns in term deposits, high-interest savings account ETFs, and technology stocks. As a result, the S&P/TSX Composite High Dividend Index has underperformed compared to the broader Canadian and US markets in both 2023 and the early part of 2024, in terms of both price appreciation and total returns.

Also read: Early Retirement Portfolio: 10 Stocks to Live Off Dividends

The recent underperformance of dividend stocks contrasts with their historical resilience. According to a report by Morningstar, following the 2008 financial crisis, investors gravitated toward income-focused strategies, valuing the perceived safety they offered. In 2008, funds in the Canadian Dividend and Income Equity category experienced a 24% loss, significantly less than the 33% drop in the Canadian benchmark index. Similarly, in 2011, when the TSX fell over 8%, the average fund in this category declined by only 0.8%. The report further mentioned that since 2008, dividend-focused funds have excelled at protecting investors’ capital during market downturns, capturing just 65% of the downside. These funds have also performed well during market upswings, capturing 75% of the gains. From January 2008 to June 2015, this category outperformed the broader market, delivering an annualized return of 4.7% compared to 3.7% for the TSX.

Concentrating on higher-yielding Canadian stocks would involve increasing exposure to sectors already heavily represented in the index, particularly financials. To achieve high yields, analysts recommend directing investments toward utilities, REITs, telecommunications, and financial sectors. Ian de Verteuil advised that Canadian investors should maintain this shift into these sectors in the future. However, he pointed out that securing high yields in Canada is challenging, as the high-yield bond market is quite restricted. Here are some other remarks from the analyst:

“Canadian investors have always struggled to find yield. Unlike the US, there are very few options for ‘high’ nominal yield – there is no Canadian municipal bond market and the high-yield bond market north of the border is extremely narrow.”

While Canadian dividend equities present an attractive option for investors, analysts consistently recommend diversifying across various regions to optimize returns. Due to the tendency of dividend investing to result in a heavier concentration of financial and energy stocks—common in the domestic market—income-focused investors should ensure their portfolios are well-diversified and aligned with their income objectives. That said, we will take a look at some of the best dividend Canadian stocks for income investors.

Our Methodology:

For this article, we scoured the list of S&P/TSX Canadian Dividend Aristocrats Index, which includes Canadian companies with at least five years of dividend growth track records. From that list, we selected stocks that are traded on American stock exchanges and sorted them by the number of hedge fund holders in our database that also had positions in those companies at the end of Q3 2024. This means that these Canadian companies are the most famous among hedge fund investors. The companies mentioned below also have strong dividend histories and healthy balance sheets, which make them reliable investment options for income investors. The stocks are ranked in ascending order of the number of funds that have stakes in them as of Q4.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here)

Imperial Oil Limited (NYSE:IMO)

Number of Hedge Fund Holders: 22

Imperial Oil Limited (NYSE:IMO), a petroleum refining company based in Calgary, is primarily owned by ExxonMobil, which holds a 69.7% stake in the company. Over the past five years, the stock has significantly outperformed the TSX, soaring nearly 175% compared to the benchmark index’s 44% return. This performance was fueled by the company’s strong operational performance. In the most recent quarter, it reported the highest upstream production in over three decades and ongoing reductions in upstream unit cash costs. Additionally, the company achieved robust downstream utilization while successfully carrying out major planned turnaround activities at its Nanticoke and Strathcona refineries, all while maintaining safety standards.

In the third quarter of 2024, Imperial Oil Limited (NYSE:IMO) reported that Kearl achieved a production rate of 295,000 total gross oil-equivalent barrels per day, with the company’s share amounting to 209,000 barrels, matching its highest-ever third-quarter output. Cold Lake’s production reached 147,000 gross oil-equivalent barrels per day, driven by a strong initial ramp-up of the Grand Rapids project, showcasing impressive performance.

Imperial Oil Limited (NYSE:IMO) also remained resilient in terms of its cash position. The company’s operating cash flow for the quarter came in at approximately C$1.5 billion. It also returned C$322 million to shareholders through dividends.

On November 1, 2024, Imperial Oil Limited (NYSE:IMO) declared a quarterly dividend of C$0.60 per share, which was in line with its previous dividend. Overall, the company has been rewarding shareholders with growing dividends for the past 30 consecutive years, which makes IMO one of the best dividend Canadian stocks. The stock has a dividend yield of 2.49%, as of January 10.

The number of hedge funds tracked by Insider Monkey owning stakes in Imperial Oil Limited (NYSE:IMO) grew to 22 in Q3 2024, from 18 in the previous quarter. These stakes are worth over $186.3 million in total. Among these hedge funds, First Eagle Investment Management was the company’s leading stakeholder in Q3.

Overall IMO ranks 9th on our list of the best Canadian dividend stocks for income investors. While we acknowledge the potential for IMO as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than IMO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock. 

READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.

Disclosure: None. This article is originally published at Insider Monkey.