Top Dividend-Growth Stocks for Today

Looking for safe, growing yield? Get a 5% yield to start from these top dividend-growth stocks, including TransCanada Corporation (TSX:TRP)(NYSE:TRP) and one other.

| More on:

Since one-third of returns comes from dividends versus price appreciation, having dividend stocks in a portfolio helps to increase returns. Moreover, regular dividends help you psychologically with the bumpy ride of holding stocks.

A stock that increases its dividends faster than inflation is even better. It helps you maintain your purchasing power. Here are two top dividend-growth stocks for your consideration.

Trusty Canadian banks

In Canada, the first quality stocks to think of buying for dividends are Canadian banks. Out of the top five banks, Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) yields the highest with a yield of 4.7% at about $59 per share.

Bank of Nova Scotia has paid increasing dividends for five years in a row. The average increase was 7.4%, which is roughly double the rate of inflation.

Its dividend-growth history is relatively short because it froze the dividend during the last recession. The other Canadian big banks also acted in a similar fashion.

Comparatively, U.S. banks had to slash their dividends during that time. So, I think the dividend freeze shows how strong Canada’s big banks are. Bank of Nova Scotia typically increased dividends every year before that dividend freeze period.

If you want a slightly higher dividend, you can consider National Bank of Canada (TSX:NA), Canada’s sixth-largest bank. At about $43, it yields 5%.

Energy infrastructure company

Along with anything related to commodities, energy infrastructure companies have also retreated in price and have greatly underperformed the market this year. As a result, they also pay higher starting yields.

TransCanada Corporation (TSX:TRP)(NYSE:TRP) is one of the highest-quality energy infrastructure leaders in North America. It has an S&P credit rating of A-. At under $42, it yields 5%.

It runs a low-risk business model. About 90% of its earnings before interest, tax, depreciation and amortization come from regulated assets or long-term assets.

Its low-risk model is one reason why TransCanada has been able to increase its dividend for 14 years in a row. In fact, the business forecasts dividend growth of 8-10% per year on average through 2020.

Based on that dividend-growth guidance, if you bought TransCanada today, your yield of 5% would grow to a yield on cost of 7.3% to 8% by 2020.

In conclusion

If you’re looking for relatively high yields, you want to buy quality dividends that are relatively cheap. Right now, these companies are trading at a discount of at least 10% from historical levels. So, your starting yield is around 5% and growing 7-10% a year.

Investors should understand that the reason these companies are selling at discounts, especially TransCanada, is because the outlook for resources remains grim in the near to medium term.

So, don’t expect these names to appreciate in price substantially anytime soon. However, their yields are safe and should continue to grow.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Kay Ng owns shares of Bank of Nova Scotia (USA) and TransCanada.

More on Dividend Stocks

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

2 Stocks Under $50 New Investors Can Confidently Buy

There are some great stocks under $50 that every investor needs to know about. Here’s a look at two great…

Read more »

think thought consider
Dividend Stocks

Down 10.88%: Is ATD Stock a Good Buy After Earnings?

Alimentation Couche-Tard (TSX:ATD) stock might not be the easy buy-case it once was. Here’s a look at what happened.

Read more »

money cash dividends
Dividend Stocks

TFSA Dividend Stocks: Earn $1,200/Year Tax-Free

Canadian stocks like Fortis are a must-have in your portfolio to earn tax-free yields for decades.

Read more »

sale discount best price
Dividend Stocks

1 Dividend Stock Down 11 Percent to Buy Right Now

Do you want a great dividend stock down 11% that can provide years of growth potential? Here's one heavily discounted…

Read more »

Growth from coins
Dividend Stocks

1 Grade A Dividend Stock Down 11% to Buy and Hold Forever 

If you're looking for the right dividend stock at the right price, you're going to want to consider this insurance…

Read more »

Target. Stand out from the crowd
Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

Are you looking for dividend stocks to buy right now? Here are two top picks!

Read more »

edit Taxes CRA
Dividend Stocks

Tax Time: How to Keep More of Your Money

Nearly everyone hates paying taxes, although Canadians can lessen the financial pain with the right tax strategies.

Read more »