Yesterday was a good day to own stocks. The Canadian and U.S. stock markets rallied 3.33% and 5.5%, respectively, which is a big move versus most days. The news is that the latest U.S. inflation of 7.7% was lower than expected, leading to the Federal Reserve seeing slowed down interest rate hikes. The optimism in the U.S., which also witnessed the NASDAQ climbing over 7%, spilled over to the Canadian stock market, because the neighbouring economies are so closely tied to each other.
Here are three dividend stocks that saw stronger gains than their peers or the Canadian stock market, which implies they have prospects to deliver massive long-term growth. There’s no better way than to buy and hold them in your Tax-Free Savings Account (TFSA) for tax-free returns if they fit your investment style and objectives.
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A utility stock with high-growth potential
Algonquin Power & Utilities (TSX: AQN) stock has sold off more severely than its peers in this market downturn. This is one reason why it also popped more strongly than its peers yesterday, climbing 3.59% on the day.
Algonquin consists of two core businesses. It has regulated utilities across natural
gas, electric, and water (including wastewater collection), which generated about 88% of its 2021 revenue. It also has non-regulated renewable power assets in wind, solar, hydro, and thermal that are approximately 82% under contracts of approximately 12 years and include inflation escalations.
Because of the essential nature of its services, the utility should generate stable profits and cash flows. Indeed, this year marks AQN’s 11th consecutive year of dividend growth. Its 10-year dividend-growth rate of 9.5% is above-average in the utility space. It should continue to outperform in growth, given its smaller size and acquisition opportunities.
Watch out for AQN’s “fresh-off-the-press” third-quarter (Q3) results this morning. Its dividend yield of 6.3% is hot as well.
BNS stock
It’s a similar case for Bank of Nova Scotia (TSX: BNS) stock that has been the worst performer among the big Canadian bank stocks. This is one big reason it climbed higher than its peers yesterday — by 4.59%.
Surely, it’s pretty much guaranteed that BNS’s dividend is safe because of its sustainable payout ratio of approximately 48%. The bank stock remains undervalued at $69 per share at writing and offers a compelling yield of about 6%. Certainly, if you need passive income, BNS stock is a no-brainer buy. It can’t be much safer than buying a durably profitable business that has paid dividends every year for about 189 years!
This growth stock jumped 8.7% yesterday
Leave it to the leading Canadian non-prime consumer lender, goeasy (TSX: GSY) to make the biggest splash of the group. It just reported record Q3 results yesterday. Loan originations were up 47% to $641 million, loan growth more than doubled to $219 million, and the loan portfolio increased by 37% to $2.59 billion.
Year to date, revenue climbed by 26% to $746 million, operating income rose 27% to $257 million, and adjusted earnings per share increased by 11% to $7.66. The adjusted return of equity of 24.3% remains solid. (The adjusted numbers excluded impacts from adjusting items related to the LendCare acquisition, corporate development costs, and fair value mark-to-market impact on investments.)
The growth stock is a Canadian Dividend Aristocrat with a 15-year dividend-growth rate of 17.3%. Its higher growth potential should compensate investors for the lower yield of 2.8% than the other two.
