Today, many senior investors rely on dividends to supplement their monthly pension incomes, but going through the process of choosing new stocks for their portfolios can be stressful.
In search of yield
Falling interest rates have destroyed the returns provided by the former go-to investments of GICs and bonds. In order to get better returns, retirees are turning to equities to fill the income gap. But stocks comes with more risk, and many investors who had heavy exposure to the oil and gas sector in the past year have really taken a beating.
Fortunately, some reliable dividend-growth stocks are still available that offer good value, excellent yield, and operate in a growth environment.
Here are the reasons why I think income investors with some extra cash on the sidelines should consider Bank of Montreal (TSX:BMO)(NYSE:BMO) and Potash Corp./Saskatchewan Inc. (TSX:POT)(NYSE:POT) right now.
Bank of Montreal
Canada’s oldest bank has paid a dividend every year since 1829. That’s a pretty good track record and investors should see the trend continue.
In recent years, Bank of Montreal has done a good job of diversifying its revenue stream to reduce its reliance on Canadian retail customers. The company now operates more than 600 branches in the U.S. Midwest, where a strengthening economy continues to deliver solid results. The U.S. operation provides a great way for investors to hedge against a falling Canadian dollar.
The company’s wealth management division is a rising star. The group delivered year-over year net income gains of 34% in the second quarter as assets under management jumped 36%. Investors should expect to see further growth in this segment.
Bank of Montreal trades at an attractive 10.7 times forward earnings. The company just increased the quarterly dividend to $0.82 per share, which currently yields a solid 4.3%.
Potash Corp.
The case for buying Potash Corp. is a simple one. The company provides the essential crop nutrients farmers need to improve yields. As the global population continues to grow from its current base of seven billion to an estimated 11 billion by 2050, farmers will need to squeeze every bit of production possible out of their land.
In the next 15 years, annual consumption of grain and oil seeds is expected to jump by 1.6 billion tonnes. In order to meet that demand, farmers will have to use an additional 58 million tonnes of potash, nitrogen, and phosphate.
Potash Corp. is in the process of completing a multi-billion dollar expansion at a number of its sites. This is great news for dividend investors because cash flow available for distributions should increase significantly as these facilities shift from development to production.
The wrap up of the capital programs comes at a good time as global potash demand hit a record 61 million tonnes in 2014, and this year’s sales should be in line with that number.
Potash Corp. trades at a reasonable 14.3 times forward earnings and recently increased its dividend by 9% to US$1.52 per share. That’s good for a yield of 4.8%.
