If you’re just starting to build your portfolio and are just getting started with investing, the one thing you should be familiar with is the power of growing dividend payments.
A company that increases its dividend payments over the years is a popular one for long-term investors because it means that the longer you hold onto the stock, the more dividend income you’re collecting even though you aren’t investing additional money into the company. It doesn’t require risk or luck. Investors just need to exercise patience to let the stock do its thing.
If you’re not sure which stocks to invest in, below is a solid dividend growth stock that can be a pillar for your portfolio that you can build around for many years:
Canadian Utilities (TSX:CU) prides itself on having the longest dividend growth streak going of any Canadian company on the TSX at 48 years in a row. That’s why the stock’s a perfect place to start for new investors — it’s the best when it comes to consistency and dividend growth.
Currently, investors earn $0.4354 in quarterly dividends for every Canadian Utilities stock. If you buy the stock at around $35, that means you’re earning right around 5% in dividend income.
Five years ago, Canadian Utilities was paying investors a quarterly dividend of $0.2950. The dividend payments have gone on to rise by 48% since then. That averages out to an annual increase of about 8% per year. If in another five years, Canadian Utilities’ dividend jumped by 48%, dividend investors would be collecting $0.64 per share every quarter.
At four times per year, it would total $2.56 in annual dividends. And on a stock that cost $35, the dividend yield would now be an incredible 7.3% on your original investment.
The one caveat with dividend stocks is that payouts are never guaranteed and they’re at a company’s discretion. However, with a strong track record, Canadian Utilities likely wouldn’t interrupt its dividend payments unless something earth-shattering were to happen where it would have no choice but to stop increasing its dividend payments. It’s not impossible, just very unlikely to happen in the foreseeable future.
Canadian Utilities is also in the utility business, which is generally very stable and full of recurring revenue. The company’s recorded a profit in each of the last 10 years and its operating income typically comes in well over 25%.
The company has a solid business, which is why even though it’s down more than 10% this year, it’s a great buy. At a lower price, investors are getting it for a bargain.
Shares of the utility company are currently trading at just 10 times earnings and around 1.6 times their book value.
The company has diversified operations with a presence in Canada, Mexico, and Australia. It’s an ideal stock to get started investing because it’s stable, pays a dividend, and is good value buy — all things you’ll want to look for if you’re a long-term investor.
Canadian Utilities is a stock that you can buy and forget about. With limited risk and a growing dividend, you can just sit back and collect a great payout.
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