Including a few quality dividend stocks in your portfolio increases the probability of regular income from the market, even amid wild market swings. Moreover, high-quality dividend stocks add balance to your portfolio and lower volatility. So, if you plan to buy dividend stocks, here are my top five picks.
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Toronto-Dominion Bank
With a continuous dividend payment history of 164 years, Toronto-Dominion Bank (TSX: TD)(NYSE: TD) stock is an excellent investment for income investors. Furthermore, it has raised its dividends at an annualized growth rate of 11% (highest among peers) since 1995.
Its diversified business mix, high-quality loan portfolio, and low-risk deposit rich balance sheet augur well for growth. Looking ahead, the improving economic environment, lower credit provisions, and operating leverage will likely support its earnings, and, in turn, its dividend payments. TD Bank offers a yield of 3.4% and its payout ratio of 40-50% is sustainable in the long term.
Enbridge
Enbridge (TSX: ENB)(NYSE: ENB), in my view, is one of the most reliable bets to generate a growing inflow of dividend income. It has a rich history of dividend payments and offers a high dividend yield of 6.3%. Its highly diversified cash flow streams, the contractual framework to reduce volume and price risk, continued strength in core business drives its distributable cash flow per share, in turn, its dividends.
Furthermore, recovery in demand, secured capital program, and opportunities in the renewable segment augur well for future growth. Also, its focus on strategic acquisitions and cost control measures will likely drive its future cash flows, in turn, its payouts.
Pembina Pipeline
Pembina Pipeline (TSX: PPL)(NYSE: PBA) is another solid dividend stock in the energy space. This company has paid and raised dividends for decades and is offering a high yield of 6.0%. Its highly contracted business and resilient fee-based cash flows support its monthly payouts. Meanwhile, its payout ratio (72% of fee-based distributable cash flows) is sustainable in the long term.
Looking ahead, higher volumes, increased price realizations, and a strong backlog of growth projects will likely drive its cash flows and dividend payments. Meanwhile, its stock is trading cheaper than peers, which supports my bullish view.
Fortis
Fortis (TSX: FTS)(NYSE: FTS) is a must-have dividend stock, and there are good reasons for that. It has raised dividends for 48 years and projects 6% annualized growth in dividends for the next five years. Its robust dividend payments are supported through its diversified and regulated utility assets that generate predictable cash flows.
Moreover, its growing rate base, strategic acquisitions, cost-savings, and expansion of renewable power capacity will likely drive its high-quality earnings base, in turn, its dividends. Fortis stock offers a highly reliable yield of 3.8%.
Canadian Utilities
Canadian Utilities (TSX: CU) has the longest history (49 consecutive years) of dividend growth by any publicly traded Canadian company. Its high-quality earnings base and regulated and contracted assets support its higher dividend payments. Further, the Canadian Utilities stock offers a high yield of 5%, which is very safe.
Canadian Utilities continues to invest in its core utility and infrastructure assets, which will likely drive its earnings. Moreover, strategic acquisitions, geographic expansion, cost optimization, strong balance sheet, and capacity to fund growth initiatives will likely drive its cash flows, in turn, dividends.
