You can build your own dividend stock exchange-traded fund (ETF) with no recurring management fees by investing in commission-free accounts such as at National Bank of Canada or Wealthsimple. In terms of defensive dividend stocks to buy and hold for the next decade, you can consider these names.
In the past, Fortis (TSX:FTS) stock has delivered market-like returns. For example, in the last decade or so, the utility stock has returned -7.6% in the worst year. And in the best year, it returned 33%. Its compound annual growth rate (CAGR) in the period was about 8.4%.
This aligned well with the much diversified Canadian stock market, using iShares S&P/TSX 60 Index ETF as a proxy. The ETF’s worst year returned -7.8%, the best year returned 28%, while the CAGR was 8.5% in the period.
Investors trust Fortis as a blue-chip stock, which has an achievement of almost half a century of consecutive years of dividend increases. Its 10-year dividend-growth rate is 6.1%. Through 2027, the utility has a low-risk capital plan to grow at a CAGR of 6.2% to $46.1 billion. The plan is two-thirds in transmission and distribution investments, as it continues to focus its diversified portfolio in these assets that provide high predictability in earnings.
Consequently, Fortis stock forecasts to grow its common stock dividend at a CAGR of 4-6%. At $54.50 per share at writing, fairly valued Fortis stock yields 4.1%. This income is roughly 46% higher than what the Canadian stock market offers.
Sun Life stock
Sun Life (TSX:SLF) is another defensive blue-chip stock you can consider holding for the next 10 years. The life and health insurance stock returned -9.4% in the worst year in the last decade or so. And in the best year, it returned 48.8%. Its CAGR in the period was about 16.3%.
Like Fortis, Sun Life is also a Canadian Dividend Aristocrat. Specifically, its 10-year dividend-growth rate is 6.7%. Over the next decade, Sun Life has the capability to continue increasing its dividend.
First, its trailing-12-month payout ratio is about 55% of net income available to common shareholders and 39% of free cash flow. Second, analysts currently project that the insurance company can continue increasing its earnings per share at a CAGR of about 7% over the next three to five years. This can drive dividend growth at a similar rate in the period.
At $67 per share at writing, Sun Life is fairly valued and offers a decent yield of 4.3%.
Dividend stocks with quality earnings tend to increase their dividends over time. Fortis and Sun Life are good examples. Investors should note that they pay out eligible dividends that are favourably taxed income for Canadians for shares held in non-registered accounts.
It’s a good idea for Canadians to grow favourably taxed passive income from dividend stocks to grow their wealth stably for the long haul. Moreover, you pay no capital gains tax until you sell shares at a profit. So, essentially, capital gains are tax deferred until you sell.