It’s been a glorious couple of months for dividend investors. Yes, you heard me right. These falling stock prices have been like dollars from heaven. Finally, after years of waiting, dividend- and distribution-paying (distributions have different tax implications than dividends) stocks are being priced a little more reasonably. It is most definitely time to be getting in on some of these deals and start locking in payouts of 5-7% on some of Canada’s highest-quality companies.
This process of adding dividend stocks is not for the faint of heart, though. If rates continue to rise, there is an extremely good chance that your capital will shrink as well. But that is what makes for good buying opportunities. Over time, add shares of excellent dividend-paying companies to your holdings, and not only will you average down your cost base, but you will also raise your dividend yield.
Besides choosing excellent companies with solid dividends and good yields, make sure that you choose companies that grow their payouts over time. Think about it. If you buy these companies as their share prices go down, and these companies raise their dividends over time, there is a very good chance that the yield will keep up with, or even exceed, interest rate increases. Unless we get a late 1970’s inflation situation, I wouldn’t worry too much about your yields over the long run.
So, which companies should you choose to include in this dividend or distribution portfolio? One distribution-paying company that might be worth including in your income portfolio is Brookfield Renewable Partners (TSX:BEP.UN)(NYSE:BEP). At 6.5%, this yield is looking pretty attractive.
The best part is, this company is under the umbrella of its parent Brookfield Asset Management, so you know that it is a well-run machine. It owns and operates a number of renewable energy companies worldwide, giving you as an investor a large amount of diversification by geography.
The distribution Brookfield Renewable pays should be fairly secure given the fact that much of the revenue the company earns is regulated. This visibility allowed the company to raise the distribution by 5% this year, in line with its projected yearly raise of 5-9%. This is a distribution, though, and not a dividend, so the tax treatment is somewhat different than a simple dividend from a Canadian corporation. It would be a good idea to consult your accountant regarding the tax implications of this distribution.
Brookfield Renewable is just one of many companies that are becoming very enticing for income investors. This is one of the rare times when an opportunity to buy stares you in the face and you should grasp it. But be aware of the continued potential downside, and do not go in all at once. The market can continue to drop, making you feel pretty ridiculous in the short term.
If these dividend stocks do continue to drop, remember to stay focused on the long term and let those dividends pay you year after year.
Iain Butler has stumbled upon a little-owned stock he believes could be one of the greatest discoveries of his almost 20 years as a professional investor.
This is your chance to get in early on of what could prove to be a very special investment recommendation. Think about how many investing trends you've missed out on, even though you knew they were going to be big. Don't let that happen again.
Fool contributor Kris Knutson has no position in any of the stocks mentioned. Brookfield Renewable Partners is a recommendation of Dividend Investor Canada.