The secret to investing in dividend stocks lies in picking companies that consistently grow earnings and raise their dividends on a regular basis.
Canada’s fastest growing communications company is bucking the industry trend by avoiding the mad scramble to buy up media, retail, and sports assets. Instead, Telus is squarely focused on being Canada’s best choice for distribution of the content its customers want to consume.
While its peers are dropping billions on TV stations and hockey teams, Telus is spending its cash on upgrading its networks and guaranteeing superior levels of customer service right across the company.
The strategy appears to be paying off as Telus continues to see increased take-up of its broadband Internet, Telus TV, and wireless services. This is translating into higher revenues and more free cash flow available to give back to investors through dividends and share buybacks.
Since 2004 Telus has increased its dividend 15 times and paid shareholders $11 billion through distributions and share repurchases.
Telus currently pays a dividend of $1.60 per share that yields about 3.8%. Over the past 10 years, the company’s annualized dividend-growth rate has averaged nearly 17% and the share price has increased 120%.
Telus trades at 15 times forward earnings and 3.5 times book value, making the shares a bit expensive compared to historical averages.
Toronto-Dominion is probably the safest bet among the Canadian banks right now, considering the concerns surrounding the country’s housing market and the lingering rout in the energy space.
Like Telus, Toronto-Dominion has invested heavily in ensuring its customers feel like they are being treated well and that effort has paid off. The company has a retail franchise that is the envy of its peers and Toronto-Dominion consistently wins customer service awards.
Happy clients tend to sign up for more offerings and Toronto-Dominion’s army of advisors does a bang-up job of selling additional credit, investment, and insurance products.
With the Canadian economy headed for some difficult times, it’s important for banks to have diversity in their earnings stream. Toronto-Dominion has spent roughly $17 billion over the past decade to build a substantial U.S. operation and this is turning out to be a very wise move because the recovering U.S. economy and rising American dollar are contributing significantly to Toronto-Dominion’s earnings. In fact, Toronto-Dominion received nearly 30% of its Q1 2015 profits from the U.S. division.
Toronto-Dominion pays a dividend of $2.04 per share that also yields about 3.8%. In the last 10 years, investors have enjoyed an annualized dividend-growth rate of 10% and the stock has increased by 118%.
The bank currently trades at 11 times forward earnings and 1.7 times book value, which are reasonable metrics when compared to the five-year average.
Which should you buy?
Both companies offer investors the same yield and their rates of capital appreciation over the past decade are also very close. Telus is trading at a premium right now because interest rates are extremely low and the stock is seen as a safe haven in difficult times. Toronto-Dominion is fairly valued but there are concerns in the market that the banks are heading into a rough patch.
As long-term investments, both companies offer great returns. It’s pretty much a coin toss at this point if you have to choose between them.
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Fool contributor Andrew Walker has no position in any stocks mentioned.