Whether you’re a frugal millennial who’s saving for retirement or a Gen X’er who’s nearly there, I believe all investors should have space allocated in their TFSAs for premium dividend growth stocks.
Not only can they grow to become a major part of your income stream in later years, but they’ll also post rather impressive capital gains in the meantime. And if you can keeping purchasing more shares somewhat frequently, preferably on the dips, you could find that you’ll have the option of retiring comfortably sooner than you originally anticipated.
Dividend growth investing is a popular strategy used by many preparing for retirement, and although a basket of aristocrats would be good enough to do the job for many investors, I’m in the camp that believes that investors should only invest in the crĂšme-de-la-crĂšme stocks.
Look for the stocks with the highest forward-looking dividend growth potential rather than placing too much emphasis on the past and dividend growth streaks, which may not be as valuable to the investor amid an environment in which technological disruption is causing many potentially disrupted firms to “tighten up” their balance sheets.
I’ve grabbed a top dividend growth stock that I believe should have a larger weighting in your TFSA portfolio. And while the upfront dividend yield may seem unremarkable at first glance, only when you do the math does the longer-term investment opportunity seem superior to most of the plays that mainstream investors are content with.
Here at the Motley Fool, we’re not content with “just average,” and you shouldn’t be either if you’ve decided to take the route of a DIY investor.
Without further ado, enter Alimentation Couche-Tard (TSX:ATD.B), a convenience store operator that has the perfect formula down and enough experience to create tremendous long-term value through its M&A activities. Driving synergies are the name of the game, and when it comes to the c-store industry, and nobody does it better than Couche-Tard.
Over the years, Couche-Tard has exhibited impeccable discipline by cutting down on debt with its cash flows and focusing on operational efficiencies, rather than continuing to spend on consolidation opportunities.
Debt is falling, and sooner or later, Couche-Tard will be back on the M&A track. And as it continues to expand its global footprint, don’t think for a minute that management will lose track of comps. They have the capability to deliver on both fronts. The result? Sustainable double-digit sales and earnings growth.
Couche-Tard is growing like few other Canadian large caps, and although the 0.55% dividend yield seems unremarkable, given the rate of dividend growth, it will only take a decade before the yield based on the original invested principal swells past the 4% mark. And the best part? It’ll continue swelling as you hold the stock.
Couche-Tard is a severely underrated dividend growth play because of its meager upfront yield. If you’re able to see the long-term picture, however, it becomes clear that the stock could accelerate your trajectory towards your retirement goal.
Foolish takeaway on Couche-Tard and dividend-growth investing for retirement
The longer you plan to hold superior dividend growth stocks like Couche-Tard, the bigger your future income stream will be. In the meantime, enjoy the growth-like capital gains that you’d swear a large-cap company wouldn’t be capable of posting.
Couche-Tard is a big blue chip with its $42 billion market cap, and while firms at the same level experience a drastic deceleration to their growth, Couche-Tard is not only capable of sustaining its growth rate, but it could re-accelerate as management spots high-ROE opportunities that arise across the globe.
Stay hungry. Stay Foolish.
