If you’re on the hunt for dividends stocks that could pay you the rest of your life, you should definitely consider Canadian banks. I like the nation’s top lenders for two reasons.
First, they operate in a kind of oligopoly where competition is limited, regulatory environment is very favourable for their growth, and they have very established and diversified revenue base.
Second, Canada’s top lenders have been very consistent in rewarding investors through steadily growing dividends. They spend about 40-50% of their income paying dividends. Such predictability is unique and makes them very attractive targets for income-seeking investors.
Among the top five Canadian banks, I particularly like Toronto-Dominion Bank (TSX:TD)(NYSE:TD). The lender has a very attractive dividend policy, supported by strong growth momentum, and TD’s significant retail-banking operation in the U.S.
You may be surprised to know that TD has more retail branches in the U.S. than in Canada with a network that stretches from Maine to Florida. In the most recent earnings, TD reported that the U.S. retail division posted a 29% growth in earnings to a record $1.26 billion.
Overall, TD roughly generates about 30% of its net income from the U.S. retail operations. The bank also has a 42% ownership stake in TD Ameritrade with a fast-expanding credit card portfolio.
After a 10.4% increase in its payout in February, income investors in TD stock now earn a $0.74-a-share quarterly dividend, which translates into a 3.84% yield on yearly basis.
The bank is forecast to grow its dividend payout between 7% and 10% each year going forward — an impressive growth rate at a time when the 10-year government note is yielding less than 2%.
Trading at $77.74, TD stock has delivered about 15% in total return so far this year, despite all the negative developments related to global trade and a slowing growth in Canada. In the past five years, TD has proven to be a much better investment when compared to the benchmark index, producing returns more than 40%. The S&P/TSX Composite Index rose just under 10% during the same period.
TD is a sold dividend stock to buy and hold to earn steadily growing income. TD is best suited for investors whose aim is buy and hold their stocks and slowly add to their wealth.
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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 Haris Anwar has no position in the stocks mentioned in this article.