Fool Canada’s first 1,000%+ winner?

Our Chief Investment Advisor, Iain Butler, and a team of The Motley Fool’s most talented investors from across the globe recently embarked on an unprecedented mission:

To identify the 20 Canadian small-cap companies they believe have the best shot at earning investors like you gains of 1,000%+ over the coming years.

For the next few days only, you can get the names and full details on these 20 potential “10-baggers” when you join Iain and his team in a first-of-its-kind project they have dubbed Discovery Canada 2017.

Why a 4-5% Dividend Yield Is the Sweet Spot

Stocks range from high-growth stocks that pay no dividend to stocks that pay yields of 8% or higher. Then there are those that pay 4-5% yields, which is where the sweet spot is.

Why is it the sweet spot? The 4-5% dividend yield already covers for the long-term inflation rate of 3-4%. Moreover, many companies that pay that 4% yield also tend to raise those dividends because they generate stable, growing earnings or cash flows.

Essentially, these companies provide a balance of income and growth. This growth includes income growth and steady price appreciation.

Telus Corporation (TSX:T)(NYSE:TU) is one of the Big Three Canadian telecoms. At under $42 per share, it is fair to fully valued.

It pays a quarterly dividend of $0.46 per share, equating to an annual payout of $1.84 per share. At the current price, that’s a yield of 4.4%.

The company plans to continue its dividend hike every six months. Specifically, it aims to hike its dividend by 7-10% per year from 2017 to 2019.

If the dividend hikes materialize at a more conservative growth rate of 7% per year, an investment today will have a yield on cost of almost 5.4% by 2019.

Brookfield Infrastructure Partners L.P. (TSX:BIP.UN)(NYSE:BIP) is another quality company that pays a sweet-spot dividend yield. At about $56, it yields 5.2% based on today’s foreign exchange rate between the U.S. dollar and the loonie.

Even assuming the more conservative exchange rate of US$1 to CAD$1.20, the company still offers a yield of more than 4.8%.

Since it pays a U.S. dollar–denominated distribution, its distribution growth rate is actually higher when translated back to the Canadian currency.

It’s a quality business to consider for an RRSP because some of its distribution could be U.S. dividends that would otherwise experience a 15% withholding tax in TFSAs or non-registered accounts.

Brookfield Infrastructure aims to grow its distribution by 5-9% per year. In fact, its last dividend hike in the first quarter was 7.5%.

Taking the midpoint of its dividend-growth guidance range, if Brookfield Infrastructure hiked its dividend at a growth rate of 7% per year, an investment today would have a yield on cost of almost 6% by 2019, assuming an exchange rate of US$1 to CAD$1.20.


Telus’s 4.4% yield more than covers inflation. Its dividend growth, which is supported by earnings growth, will help it continue to maintain shareholders’ purchasing power.

Likewise, Brookfield Infrastructure’s 4.8% yield also beats inflation. The business’s growing cash flow helps support its growing distribution.

Investing $10,000 in each company today starts investors off with an annual income of $440 and $480, respectively. By 2019, while those investments should steadily appreciate, and so should your income from them–potentially increasing to roughly $540 and $600, respectively.

Want more top dividend stocks?

These three top stocks have delivered dividends for shareholders for decades (and even centuries!). Check out our special FREE report: "3 Dividend Stocks to Buy and Hold Forever". Click here now to get the full story!

Fool contributor Kay Ng owns shares of Brookfield Infrastructure Partners and TELUS (USA).

NEW! This Stock Could Be Like Buying Amazon In 1997

For only the 5th time in over 14 years, Motley Fool co-founder David Gardner just issued a Buy Recommendation on this recent Canadian IPO.

Stock Advisor Canada’s Chief Investment Adviser, Iain Butler, also recommended this company back in March – and it’s already up a whopping 57%!

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