Prepare to Buy Your Favourite Dividend Stocks

Set yield and price targets for the quality dividend stocks you want to buy, such as Royal Bank of Canada (TSX:RY)(NYSE:RY) and Enbridge Inc. (TSX:ENB)(NYSE:ENB).

| More on:
The Motley Fool

The big Canadian banks and energy infrastructure companies are some of the highest quality businesses you can buy on the Toronto Stock Exchange. So, you can’t go wrong by keeping a watchful eye on quality dividend stocks like them. For example, Royal Bank of Canada (TSX:RY)(NYSE:RY) and Enbridge Inc. (TSX:ENB)(NYSE:ENB) may be some of your favourite dividend stocks. They are mine.

For solid, quality businesses such as Royal Bank, with its S&P credit rating of AA-, and Enbridge, with its rating of BBB+, there’s a simple way for investors to determine if they’re buys or not.

Choose a yield and price target

When share prices decline or dividends increase, the dividend yields increase. So if Royal Bank’s or Enbridge’s yields are high compared to their historical yields, then that would indicate their shares are cheap.

Royal Bank of Canada

In the past five years Royal Bank’s yield typically oscillated between 3.6% and 4.3%. It seldom reaches a yield of 4.6%. So, any time the yield goes above 4.3%, it could be a buying opportunity.

The bank pays a quarterly dividend of 79 cents per share. That’s an annual payout of $3.16 per share. So, my maximum buy price for Royal Bank is $73.48 for a 4.3% yield. Currently, it costs $72.82 per share, which is lower than my maximum buy price, so I could buy at these levels. If your target yield is 4.5%, then you’d only buy at or below the price of $70.22.

Enbridge Inc.

In the past five years Enbridge’s yield typically remained around 3%. Its yield seldom reaches over 4%. In fact, in the past 10 years, it never reached the current yield of 4.6%.

Enbridge has a high yield because its share price has declined 24% in the past 12 months, and it also just hiked its dividend by 14%. If oil prices remain low, Enbridge’s share price won’t go anywhere. However, its yield is still covered by its cash flows.

The energy infrastructure business pays a quarterly dividend of 53 cents per share. That’s an annual payout of $2.12 per share. So, my minimum buy price for Enbridge is $53 for a 4% yield. Currently, it sells at a 13% discount from that price, costing $46 per share, so I could buy at these levels. If your target yield is 4.5%, then you’d only buy at or below the price of $47.11.

In summary

Now is a good opportunity to buy Enbridge for its 4.6% yield, which is high compared with its historical yields. On the other hand, Royal Bank would be a better buy with its minimum yield of 4.5%.

Prepare to buy your other favourite dividend stocks by making a list, setting their yield targets, and calculating the prices that you’re willing to pay for each. Then seize the opportunities to buy when they arise.

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 Enbridge, Inc. (USA) and Royal Bank of Canada (USA).

More on Dividend Stocks

young woman celebrating a victory while working with mobile phone in the office
Dividend Stocks

3 CRA Benefits Most Canadians Can Grab in 2024

You can save on taxes by claiming the dividend tax credit on Fortis Inc (TSX:FTS) shares.

Read more »

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »