Canadian retirees are searching for reliable dividend stocks to help supplement their pension income.
In the old days, the equities had to be held in a taxable account, which often meant sharing part of the distributions with the government.
Since its arrival in 2009, the TFSA has enabled Canadian investors over the age of 18 to earn income tax-free, and the contribution room is now up to $52,000. At that level, the amount of dividends that can be protected is large enough to potentially make a meaningful difference in a person’s annual income.
Let’s take a look at two dividend-growth stocks that might deserve a spot in your TFSA income portfolio.
Enbridge Inc. (TSX:ENB)(NYSE:ENB)
Enbridge closed its purchase of Spectra Energy earlier this year in a move that created North America’s largest energy infrastructure company.
Spectra added strategic gas assets to complement Enbridge’s heavy focus on liquids pipelines. It also provided a nice boost to the near-term capital program, which stands at close to $31 billion, according to the Q2 2017 earnings report.
As the new assets are completed, Enbridge expects cash flow to increase enough to support dividend growth of at least 10% per year through 2024.
Investors should feel comfortable with the guidance, given Enbridge’s strong track record of raising the payout. In fact, the compound annual dividend-growth rate for the past 20 years is better than 11%.
The stock has pulled back in 2017 amid the broader weakness in the energy sector, providing new investors with an opportunity to pick up Enbridge at a reasonable price.
At the time of writing, investors receive a 4.7% yield.
Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM)
CIBC currently trades at a steep discount to its larger Canadian peers, but that might not last.
What’s going on?
Investors are concerned CIBC is too exposed to the Canadian residential housing market.
It’s true the bank has a large mortgage portfolio, and a total meltdown in house prices would be negative for the stock, but most analysts expect a gradual pullback rather than a market collapse.
In the event house prices correct more than forecast, CIBC is well capitalized, and the mortgage portfolio is capable of riding out a rough patch.
Management is aware the company should diversify its exposure, and CIBC’s two acquisitions in the U.S. this year are important steps to help balance out the revenue stream and provide a platform for additional U.S. growth.
CIBC just raised its dividend when it reported fiscal Q3 results, so the bank can’t be overly concerned about the revenue or earnings outlook.
It’s possible the market fear is overblown, and investors could see the price-to-earnings multiple begin to drift higher in the coming months and through 2018.
CIBC’s current dividend provides a yield of 4.7%.
Is one more attractive?
Both stocks appear reasonably priced and provide above-average yields that look safe. At this point, it might be a good idea to split a new investment between the two names.
