The Motley Fool

Dividend-Growth Stocks With Mammoth Price Appreciation

The time to buy dividend stocks is when their share prices are depressed. Lower share prices mean a higher yield and more income for investors. Here are two dividend-growth stocks with safe, growing dividends, which income and total returns investors should consider. Both stocks offer decent income and price appreciation potential.

Enbridge offers a ~5.4% yield

Enbridge Inc. (TSX:ENB)(NYSE:ENB) stock seems to be on the path to recovery. From its recent low of ~$44 per share, the stock has bounced ~12%, which indicates that it was too cheap for the market to ignore.

Despite the pop, Enbridge still offers an attractive yield compared to what it had historically offered. The North American energy infrastructure leader seldom offers a yield as high as today’s ~5.4%.

The high yield is caused by its depressed share price (which is ~12.5% lower year to date) and the fact that the company recently hiked its dividend by 10%.

Management aims to hike the dividend by 10% per year through 2020. The Street consensus from Thomson Reuters indicates there’s ~18% from the recent quotation of $49.43 per share.

sit back and collect dividends

Plaza Retail offers a ~6.3% yield

Plaza Retail REIT (TSX:PLZ.UN) earns about a quarter of its rental revenues from Shoppers Drug Mart, whose parent company is Loblaw.

Like other retail REITs, Plaza Retail stock has been under pressure in the last year or so.

Plaza Retail stock has underperformed its bigger peers in the last 12 months by a wide margin. The stocks of two of its bigger peers have fallen 6-8%, while its stock has fallen more than 15%.

Recent results show that Plaza Retail is still doing fine. Although its committed occupancy fell 70 basis points to 95.5%, its diluted adjusted funds from operations per unit from the last three quarters increased ~12% compared to the same period in 2016. As a result, its payout ratio also improved by falling 7% to 81.6%.

With an average lease term to maturity of close to six years, Plaza Retail’s rents should remain stable, and so should its cash flow and cash distribution. The company has increased its cash distribution every year since 2003, and it has the capability to continue doing so.

Plaza Retail trades at a steep discount to its norm. At $4.20 per unit, it trades at a multiple of ~12.1. A reversion to the mean would indicate ~25% upside. Coupled with its ~6.3% yield, and you can see why Plaza Retail is an attractive investment.

Investor takeaway

Long-term investors might consider buying both Enbridge and Plaza Retail for price appreciation, while getting nice yields of 5.4-6.3%. Enbridge will probably provide better growth in the long run. However, Plaza Retail has more upside in terms of potential multiples expansion.

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. The Motley Fool owns shares of Enbridge. Enbridge is a recommendation of Stock Advisor Canada.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.