Passive-Income Investors: These 2 TSX Dividend Aristocrat Stocks Have Increased Yields for 25 Years

Dividend-growth investors should consider buying and holding both of these stocks forever.

| More on:
money cash dividends

Image source: Getty Images

New passive-income investors often make the rookie mistakes of chasing high dividend yields. While a high dividend yield might be appealing for immediate income, it sacrifices some long-term gain potential. A better way to dividend invest for retirement is by investing in dividend growth.

In this case, we want to buy companies that have a history of increasing their dividend payout amounts year after year. Companies with more than 25 years of consecutive dividend increases and payouts are called “Dividend Aristocrats,” and they tend to be very profitable investments.

Dividend Aristocrats often have excellent fundamentals. After all, the money to pay shareholders year after year has to come from somewhere — in this case, their strong operating and profit margins, earnings per share, and ever-increasing revenue.

Atco

Atco (TSX:ACO.X) is a natural gas distribution company holding a diversified portfolio of power plants, power lines, and hydrocarbon storage facilities. It boasts 14 commercial properties, covering 60,000 square feet of industrial property, 417,000 square feet of office property, and 315 acres of land.

ACO.X qualifies for the Dividend Aristocrat title on the basis of its 26-year streak of consecutive increasing dividend payments. Over the last five years, ACO.X has increased the dividend by around 13% on average each year. The current payout is $1.85 per share for a yield of 4.11%.

However, investors should be cautious. ACO.X has very high payout ratio of 83.40%, which may not be sustainable. However, ACO.X has a current ratio of 1.40, indicating that it can cover its liabilities if needed, especially given that it has $1.09 billion in cash on the balance sheet as of the most recent quarter.

Thompson Reuters

Not many investors know what Thompson Reuters (TSX:TRI)(NYSE:TRI) does. The company can be best explained as a provider of business information to various professional sectors, such as legal, tax & accounting, news and media agencies, and other corporations.

Like ACO.X, TRI also qualifies as a Dividend Aristocrat, having increased the dividend payments for 26 consecutive years as well, with a five-year average growth rate of 3.5%. While the yield of 1.64% may seem small, the dividend payout is $1.78 per share at a current share price of $108.79.

TRI’s high share price comes after a run-up that saw it soar by over 130% in the last five years compared to the 44% seen by the broader TSX. The stock’s payout ratio also remains extremely low at just 14.09%, which gives it great room to grow later as TRI continually increases the dividend payout.

The Foolish takeaway

Dividend-growth investing by buying Dividend Aristocrat stocks, such as ACO.X and TRI, is an excellent method. As a result of their strong profitability and earnings, these companies can afford to continually raise their payouts, providing investors with increasingly better returns year after year. Buying shares of either stock after a market correction is an excellent way to lock in a low yield on cost, especially as their fundamentals are unlikely to be affected.

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 Tony Dong has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

More on Dividend Stocks

Money growing in soil , Business success concept.
Dividend Stocks

Top Canadian Dividend Stocks to Buy and Hold for the Long Term

These Canadian companies have been paying dividends for more than four decades and have been consistently growing the same.

Read more »

edit Safety First illustration
Dividend Stocks

How to Generate Inflation-Proof Passive Income

Inflation-resistant, passive-income stocks like Enbridge (TSX:ENB)(NYSE:ENB) should be on your list.

Read more »

Increasing yield
Dividend Stocks

Dividend Chasers: 3 Stocks With Yields of 8% or More

Three TSX stocks are appetizing for investors whose strategy is to chase after dividend beasts.

Read more »

Simple life style relaxation with Asian working business woman healthy lifestyle take it easy resting in comfort hotel or home living room having free time with peace of mind and self health balance
Dividend Stocks

Become a Laidback Landlord Easily With Canadian REITs

Do you want to continue earning rental income but reduce your workload? You should dig deeper into REIT investing!

Read more »

data analyze research
Dividend Stocks

Stocks for Beginners: 3 Reliable Dividend Stocks to Buy Now

The best time to start investing is in a market correction. If you are a new investor, here are three…

Read more »

funds, money, nest egg
Dividend Stocks

Canadian Retirees: 2 Top TFSA Stocks for Tax-Free and Passive Retirement Income

Invest in these two top stocks to enjoy high-yielding, tax-free dividend income in your TFSA amid the market pullback.

Read more »

financial freedom sign
Dividend Stocks

Generate Enough Passive Income to Retire

Looking to generate a stream of passive income to retire on? Here are several stocks to start building out your…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

3 Stocks to Hold for a Reliable Source of Passive Income

Are you looking for a way to produce a reliable source of passive income? Hold these three stocks!

Read more »