Every investor needs to have stocks that provide reliable dividends in their portfolio. These types of companies generate steady returns and are typically less volatile than non-dividend-paying stocks. Therefore, dividend stocks are a great way for Foolish investors to invest for the long term and let that magic of compounding work.
However, not all dividend stocks are created equal. Some companies focus too much on servicing their dividends, which can cause the underlying business to suffer. Therefore, investors could incur significant losses if they invest in companies that aren’t paying dividends within their financial constraints.
Bank of Montreal (TSX: BMO)(NYSE: BMO), Canadian Apartment Properties REIT (TSX: CAR.UN), and Algonquin Power & Utilities Corp. (TSX: AQN)(NYSE: AQN) are three companies that continue to grow while providing a solid dividend for investors.
Here’s a quick look at all three companies.
Bank of Montreal
BMO currently holds the longest dividend payout of any Canadian company at 187 years and is showing no signs of slowing down. Over the past four years, the company has increased its dividend per share by an annual average of 4.8% while maintaining a payout ratio below 50%. Therefore, the company continues to increase its returns to shareholders while staying within its financial constraints.
In addition, 24% of the company’s earnings derive from south of the border. Therefore, the company should reap the benefits of a rising U.S. economy and provide significant growth opportunities in its operating segments.
If an investor had bought $10,000 worth of shares 20 years ago and reinvested the dividends, they’d have over $86,000 today! There is no guarantee BMO will repeat these returns in the next two years, but Foolish investors are better off sticking with companies that have a proven track record of shareholder returns.
Canadian Apartment Properties REIT
Canadian Apartment Properties REIT, or CAP REIT, is one of Canada’s largest residential landlords and is continually adding high-quality residential properties. The majority of its properties are in many of Canada’s large urban centres; the company has been acquiring properties in Netherlands and Ireland as well. Therefore, investors can obtain exposure to international markets under a Canadian name.
Although the company is continually trying to add quality properties to its portfolio, it has also been able to grows its free cash flow by an annual average of 20.9% since 2012. Therefore, if the company can maintain its occupancy rate of 98.7%, it should be able to continue to expand its operations while growing its current dividend yield of 3.71%.
Algonquin Power & Utilities Corp.
One of the greatest benefits of owning utility companies is the recurring cash flows. With over 74% of Algonquin’s revenue deriving from regulated assets, the company has a significant portion of its revenue fairly secured. Therefore, the company should have the resources to acquire more utility companies while providing investors with strong dividend yield of 4.8%
However, one issue investors should note is that the dividend-payout ratio has begun to reach uncomfortable levels due to its acquisition-by-growth strategy. However, since the company is acquiring other highly regulated utility companies, these acquisitions should translate into stronger cash flows and reduce the payout ratio in the future. Therefore, investors shouldn’t be afraid to invest in this growing utility company.
Foolish bottom line
There is no doubt that acquiring shares in dividend stocks like the ones mentioned above is an excellent way to build wealth over the long term. By buying and holding these stocks and reinvesting the dividends, Foolish investors can let their money work for them and watch the returns compound!
Fool on!
