To make my no-brainer dividend stock buy-and-hold list, the stocks must have an underlying quality business, provide a nice yield, and are expected to grow at a decent pace.
All three stocks are trading at good valuations for buying today, but if they should correct in a bear market, it would be an excellent opportunity to load up more shares.
Canadian bank stocks: A buy-and-hold dividend stock
The first no-brainer dividend stock pick is a big Canadian bank stock. I want to explain a little more about this pick. Over the weekend, I published an article about stock portfolio diversification on my blog and shared it on a Canadian dividend stock investing Facebook group.
In my article, I wrote, “you wouldn’t want 50% of your dividend portfolio in bank stocks, because they would get hit hard in a financial crisis or recession. Although during a recession, likely all sectors and industries will be impacted, some will recover faster than others. That’s where it’s advantageous to hold a diversified portfolio versus one that’s concentrated.” I still stand behind what I wrote, but one reader replied with a rebuttal.
Essentially, her argument is that the big Canadian banks have a long history of paying safe dividends. She stated that bank stocks would particularly interest retired or income investors as buy-and-hold stocks for income. During the last financial crisis, she had 50% of her portfolio in bank stocks. Most commentators were strong supporters of the banks as well, with another guy saying that he is about 40% in bank stocks right now! 12 people liked her comment, which speaks a lot given that only six liked my original post.
The 50% figure originated from me hearing about certain retail Canadian portfolios owning 50% in the Canadian banks, which I thought was a lot. From this little informal discussion, it appears the concentration in bank stocks for Canadian stock portfolios could be more common than I initially thought.
To be clear, I’m not against the bank stocks’ validity as safe dividend stock investments when bought at good valuations. I would personally be uncomfortable if I had 50% of my portfolio in banks, though.
The Canadian bank stocks tend to move in tandem. So, I reviewed the Big Six Canadian banks. Toronto-Dominion Bank stock appears to be the best value of the bunch today and provides a decent yield of 3.8%.
A top dividend stock
Brookfield Infrastructure Partners (TSX:BIP.UN)(NYSE:BIP) is a no-brainer buy-and-hold dividend stock as well.
First, it’s diversified by geography and industries across essential infrastructure assets. Second, it’s a value investor that owns and operates high-quality, cash-cow assets and isn’t shy about taking profits in mature assets to redeploy proceeds for higher returns.
Third, it has a track record of outperformance to prove it’s the cream of the crop. Since its inception in 2009, its total return has been close to 20% per year. Let me know if you find another utility stock that beats its track record. Currently, BIP stock is fairly valued and yields almost 3.6%. From current levels, long-term annualized returns of at least 10% are in the cards.
A must-buy Canadian REIT
Canadian Net REIT (TSXV:NET.UN) is an awesome way to invest in real estate passively. It is led by a professional management team that aims to invest in a portfolio of quality commercial real estate properties in the long run. It benefits from triple-net and management-free leases as well as from development opportunities that can drive higher returns.
As of writing, the REIT consists of 86 properties in eastern Canada with a high occupancy rate of 99%. Investors can feel at ease that insiders’ interests are aligned with theirs, as insiders own approximately 15% of the REIT.
The dividend stock compounded returns at about 18% per year over the last 11 years. The dividend stock is undervalued today and offers an initial yield of almost 3.8%.