It’s impossible to time for the market bottom. Investors are better off investing regularly over time and building positions in stocks that can build their wealth in the long run. Here are two such stocks that are trading at good valuations.
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Bank of Montreal stock
The big Canadian bank stocks have been diligent in delivering solid returns for long-term investors. Bank of Montreal (TSX: BMO) stock, in particular, has returned approximately 12.9% per year in the last decade. It beat the Canadian stock market return of 8.8% by 4.1%. As well, in this period, the bank managed to increase its adjusted earnings per share (EPS) by a respectable rate of 8.2%. Simultaneously, it increased its dividend by 6.2% per year, resulting in an improved payout ratio over time.
The bank stock provides a higher yield than the Canadian stock market as well. Currently, BMO stock yields close to 4.4% versus the market yield of roughly 2.8%. That’s 57% more in income.
Bank of Montreal stock trades at a discount of about 11% from its long-term normal valuation. Combining valuation expansion potential, its above-average dividend yield, and stable earnings growth, investors of the stock today can build wealth over the long term.
Assuming an EPS growth rate of 6%, investors could bank on an approximated total return of 11.5% annually over the next five years, turning an initial $10,000 investment into $17,233.
Another wealth-building stock that’s on sale
Brookfield Renewable Partners (TSX: BEP.UN) is a bargain for long-term wealth creation right now. The leading renewable energy stock sold off about 19% in the last 12 months. The decline could be attributable to an increased cost of capital from higher interest rates that have depressed stock valuations and increased the cost of borrowing. However, it would be short-term thinking to avoid the stock now.
Decarbonization is a secular tailwind for BEP over the next decade — probably longer. The renewable utility stock has already proven that it can deliver solid returns to unitholders through a growing cash distribution. Specifically, it has increased its cash distribution for 13 consecutive years with a 10-year cash distribution growth rate of 5.7%. It just raised its dividend by 5.5% this month.
The company’s portfolio is diversified across hydro, wind, solar, and distributed energy and sustainable solutions. Currently, it has operating capacity of roughly 23,600 megawatts (MW). And it has about 102,000 MW of development projects in its pipeline!
Management targets a 12-15% rate of return on its investments through development projects, acquisitions and mergers, and operation optimization. Additionally, it is devoted to increasing its cash distribution by at least 5% annually.
Analysts think the dividend stock is on sale with a discount of about 30%. At the recent quotation, it offers an attractive yield of 5.1%.
Investor takeaway
BMO and BEP are two dividend stocks you can consider for long-term wealth creation. Both trade at good valuations today. You might hold BMO stock in your taxable account because it pays out eligible dividends that are favourably taxed income for Canadians. For BEP, you might park units in your Registered Retirement Savings Plan, as its cash distributions may otherwise be taxed differently in a taxable account.
