Even risk-takers look for some certainty. Knowing that you will receive X amount in your account gives you the backing to take risks. But that doesn’t mean you should put most of your portfolio in fixed-income securities. Build a diversified pool of fixed-income securities and magnificent dividend stocks that react differently to different situations.
Why buy dividend stocks hand over fist?
Dividend aristocrats give you a slightly better return than fixed-income securities in the long run as their dividend amount grows along with the economy. This quality of dividend aristocrats makes them an investment investors continue buying hand over fist.
Most dividend aristocrats are utility companies. Electricity, gas, water, and internet are some basic necessities for which you shell out money every month. There is no quality difference, and it is mostly a single provider because the cost of setting up the infrastructure is high. Thus, they enjoy regular cash flows. Now electricity and gas prices are regulated, but internet prices are not. That gives telecom companies an advantage of charging subscribers higher amounts for 5G.
Among the dividend aristocrats, BCE (TSX: BCE) is my first choice. Here’s why.
One dividend stock to continue buying
BCE is a stock you may already have in your Registered Retirement Savings Plan (RRSP) portfolio. But you can also buy it in your Tax-Free Savings Account (TFSA). If you are looking for an investment but can’t understand where to park your money, BCE is a good choice.
Let’s look at BCE stock’s performance. Its share price is not too volatile. During the 2021 tech bubble, when everything was rising at a rapid pace, BCE stock surged 21%, in line with the S&P TSX Composite Index. In the last 12 months, BCE and the S&P TSX Composite Index fell almost 11%. This performance shows that BCE can give you a market return.
If you invest in an S&P TSX Composite Index ETF, you only get exposure to price momentum for an annual management fee. But with BCE, you don’t have to pay a management fee, and you can lock in an average dividend yield of 5.5%. The telco has been growing its dividend at an average rate of 5% for 11 years.
Why invest in BCE?
In Canada, three telcos – BCE, Rogers Communications, and Telus Mobility – account for 86% market share. Among the three, Rogers Communications has been stuck on the $20 billion merger with Shaw Communications for two years. This merger will make Rogers an industry leader and keep BCE on its toes with its continuous focus on efficiency and competitivity. Telus is also a good dividend stock to diversify your portfolio, but it has a lower average dividend yield of 4.9%.
How to invest in such dividend stocks continuously
There is a trick to buying dividend aristocrats without burning a hole in your pocket. Like your rent and utility bills, you can allocate a $250 monthly budget to these stocks. As they are not very volatile, your investment amount will grow in the long term along with the market, with some hiccups in the short term.
| Year | BCE average share price (4% CAGR) | Contribution | No. of shares purchased | Total shares | Dividend per share (5% CAGR) | Annual dividend |
| 2023 | $63.0 | $3,000.0 | 47.6 | $3.9 | $184.3 | |
| 2024 | $65.5 | $3,000.0 | 45.8 | 93.4 | $4.1 | $379.6 |
| 2025 | $68.1 | $3,000.0 | 44.0 | 137.4 | $4.3 | $586.4 |
| 2026 | $70.9 | $3,000.0 | 42.3 | 179.8 | $4.5 | $805.4 |
| 2027 | $73.7 | $3,000.0 | 40.7 | 220.5 | $4.7 | $1,037.1 |
| 2028 | $76.6 | $3,000.0 | 39.1 | 259.6 | $4.9 | $1,282.3 |
| 2029 | $79.7 | $3,000.0 | 37.6 | 297.2 | $5.2 | $1,541.6 |
| 2030 | $82.9 | $3,000.0 | 36.2 | 333.4 | $5.4 | $1,815.7 |
| 2031 | $86.2 | $3,000.0 | 34.8 | 368.2 | $5.7 | $2,105.4 |
| 2032 | $89.7 | $3,000.0 | 33.5 | 401.7 | $6.0 | $2,411.6 |
You make a monthly investment of $250 for 10 years in BCE, whose stock price and dividend per share grows at a CAGR of 4% and 5%, respectively. The stock has the potential to give you a passive income of $200/month ($2,411 annually) in 10 years and grow your $30,000 investment to $36,000.
Diversify your dividend portfolio to earn a 6% dividend yield and 5% dividend growth to realize the above passive income.
