If you love income, you’ll love buying companies that pay safe, above-average dividends and holding them for a long time for growing income.
Dividend investing is a defensive strategy; when share prices fall, you’ll continue to receive dividends that can help you weather the storm.
Brookfield Renewable Partners LP (TSX:BEP.UN)(NYSE:BEP) and Manulife Financial Corp. (TSX:MFC)(NYSE:MFC) offer higher yields than the market, which is represented by iShares S&P/TSX 60 Index Fund, which yields 2.9%.
Brookfield Renewable
Brookfield Renewable gives you access to a leading renewable power portfolio with a focus on hydroelectric generation (87%) complemented by wind generation (12%). It has about 10,400 megawatts of installed capacity with about 90% of contracted cash flows that support a solid distribution.
Brookfield Asset Management Inc. manages and owns a significant stake of about 63% in Brookfield Renewable.
Brookfield Renewable has an investment-grade S&P credit rating of BBB, and Brookfield Asset Management has a strong S&P credit rating of A-.
Brookfield Renewable aims for long-term returns of 12-15%, which would trump the average market returns of 10%.
Since Brookfield Asset Management spun off Brookfield Renewable in 2011, Brookfield Renewable has grown its distribution by almost 32% (at a compound annual growth rate [CAGR] of 5.7%) from US$1.35 to US$1.78 per unit.
It last hiked its distribution by 7.2% in the first quarter. Based on the current foreign exchange between the U.S. dollar and the Canadian dollar, at $39.73 per unit, Brookfield Renewable yields 5.8%. It aims to hike its distribution at a CAGR of 5-9% in the foreseeable future.
Its distribution growth already beats inflation, but the fact that it pays a U.S. dollar–denominated distribution increases those growth rates when translated into Canadian dollar terms.
As stated on Brookfield Renewable’s website, “[it] is a qualified investment for RRSPs, deferred profit sharing plans, RRIFs, registered education savings plans, registered disability savings plans and TFSAs.”
If you invest in a non-registered account, you’ll receive a T5013 from your broker around tax-reporting time.
Manulife Financial
Manulife’s share price is depressed compared to its long-term normal multiple of 15. Using its six-year normal multiple of 13.2, which is more conservative, Manulife could trade at $25 based on its estimated earnings per share for this fiscal year. This indicates the shares are discounted by more than 30%!
The major reason why Manulife’s share price is depressed is because of the current low interest rate environment, and it doesn’t look like rates will rise significantly anytime soon.
History indicates that in the long term, share prices will trade at the norm again, in which case, Manulife is a great buy today for long-term investment.
At $16.86, Manulife offers a safe yield of 4.4% with a payout ratio of about 40%. Since 2013 Manulife has hiked its dividend by 42% (at a CAGR of 12.5%).
