New Investors: Start Investing in 2 Dividend Stocks With Peace of Mind

New investors who don’t want to spend too much time managing their investments can consider buying these dividend stocks.

| More on:
Young woman sat at laptop by a window

Image source: Getty Images.

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Economists are seeing an increasing probability of a recession occurring in the United States. Since Canada and the U.S. have close ties, should a recession occur in the U.S., it’s likely that Canada will experience one, too. The fact is that history does repeat itself and economic contractions always come sometime after economic expansion. So, we know it will occur. It’s just a matter of when and the severity. The situation is similar in the stock market. After substantial gains in the stock market, eventually, a market downturn will always occur. It’s a matter of when and the severity.

A market downturn is already in play. At writing, the stock markets in Canada and the U.S. have broken under the 50-week simple moving average. New investors need not be concerned, though, if they buy dividend stocks that can give them peace of mind. The following dividend stocks can be long-term investments that pay you decent (growing) dividend income for holding the stocks.

CIBC stock for a 4.6% dividend

Big Canadian bank stocks serve as core holdings for many dividend portfolios for good reason. They provide safe dividends and stable earnings growth, which result in stable dividend growth in the long run. Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) stock is a good example.

CIBC stock just had a two-for-one stock split this month. To new investors, the bank stock price cut in half may seem like a bargain, but in fact, it has the same economic value as before the split, because its outstanding common shares also doubled. At the end of the day, investors should look at the valuation of the stock to determine if it’s a good buy now. At $69 and change per share at writing, the stable bank stock trades at about 9.1 times this year’s earnings, which suggests it trades at a discount of about 11% from its long-term normal valuation.

Assuming CIBC’s long-term earnings-per-share (EPS) growth rate is 5%, it can be approximated that its long-term rate of return will be about 9.6%, including its 4.6% dividend yield. Valuation expansion can add returns of roughly 2% per year assuming a five-year investment horizon.

Another interesting dividend stock that’s also in the financial services sector is goeasy (TSX:GSY).

Buy this dividend stock for higher growth potential

New investors can consider goeasy stock to complement their bank stock holding(s). goeasy is a leading Canadian consumer lender that has historically delivered higher growth than the banks. For example, from 2007 to 2021, CIBC stock increased its EPS and dividend per share (DPS) by 64% and 88%, respectively, doubling long-term stockholders’ money in the period. In comparison, goeasy stock increased its EPS and DPS by 807% and 843%, respectively, and grew investors’ money nine-fold in the period!

goeasy stock yields about 3.2% at $113 and change per share at writing. The dividend is smaller than CIBC’s but it still provides pretty good income. Importantly, the company has the potential to grow its EPS and DPS at a rate of north of 10%. Valuation expansion can add returns of about 3% per year assuming a five-year investment horizon. This means the long-term annualized return in goeasy stock could be more or less around 16% versus CIBC’s 11%.

The Foolish investor takeaway

New investors can look more closely at these two dividend stocks and consider buying them with an investment horizon of at least three to five years. Think along the lines of getting passive, growing dividend income while expecting the stock prices to appreciate in the long run.

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.

The Motley Fool has no position in any of the stocks mentioned. Fool contributor Kay Ng owns shares of goeasy.

More on Stocks for Beginners

potted green plant grows up in arrow shape
Stocks for Beginners

1 Canadian Growth Stock That Could Double Your Money in an Economic Recovery

The market downturn is an opportunity to lock growth during the economic recovery. This stock is a blend of value,…

Read more »

edit Safe pig, protect money
Stocks for Beginners

2 Safe TSX Stocks for Beginners to Buy in a Market Correction

These two TSX stocks are still solid long-term buys today, despite the recent market correction.

Read more »

Human Hand Placing A Coin On Increasing Coin Stacks In Front Of House
Stocks for Beginners

3 Real Estate Stocks to Buy for Terrified Investors

Motley Fool investors shouldn't be afraid of investing in real estate if they have a long-term growth strategy, but these…

Read more »

Value for money
Stocks for Beginners

Market Correction: A New List of Value Stocks Just for You

The 2022 stock market has been bearish, with tech stocks being the biggest losers. But tables are turning. It's time…

Read more »

Knowledge concept with quote written on wooden blocks
Stocks for Beginners

3 Reasons Why Inflation Impacts Canadian Stocks

Here are the three most common ways inflation impacts Canadian stocks, why they're selling off, and when you'll want to…

Read more »

Growth from coins
Stocks for Beginners

2 Growth Stocks New Investors Can Buy on the Dip Today

After the recent market correction, many growth stocks look cheap, making it a perfect time for stock market beginners to…

Read more »

Make a choice, path to success, sign
Stocks for Beginners

3 Reasons Cineplex Stock Is a Better Buy Than Air Canada

Although both Air Canada and Cineplex stock are ultra-cheap, here's why the entertainment company is a much better investment.

Read more »

stock data
Stocks for Beginners

Where to Invest $5,000 Amid the Market Selloff

Can you afford to invest $5,000 in stocks right now? If yes, you must consider buying these dirt-cheap stocks amid…

Read more »