Income Stocks: A Once-in-a-Decade Chance to Get Rich

As a part of your diversified investment portfolio, solid dividend stocks on sale can help you get rich with growing income.

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Alert! Alert! It’s a once-in-a-decade chance to get rich with income stocks! Rising interest rates last year increased the cost of capital for businesses and weighed on stock valuations. Higher rates have resulted in higher yields for investors for the long term, especially when you expect the dividends to increase.

Safe dividends provide stable returns throughout the holding period, irrespective of stock prices. Additionally, you can anticipate long-term stock prices to climb if the underlying businesses become more profitable over time.

Manulife stock

Manulife (TSX:MFC) is a global life and health insurance company that earns annualized net income of about $7 billion. By geography, its asset mix, as of the end of 2022, was 45% in the United States, 29% in Canada, 5% in Europe, 4% in Japan, and 17% in Hong Kong, the rest of Asia, and other.

About 82% of its portfolio were in fixed-income assets, including 18% of the portfolio in government bonds, and 31% in corporate bonds. Notably, it has a high-quality debt portfolio. Roughly 96% of its debt securities and private placement debt are investment grade; 71% are rated A or higher.

The undervalued stock is on sale right now at $24.09 per share at writing. It trades at about 7.7 times earnings, while it’s expected to increase its earnings per share by about 7.4% per year over the next three to five years. Importantly, the dividend stock also offers an attractive dividend yield of almost 6.1%.

Manulife stock has maintained its common stock dividend from 2011 to 2013 before increasing the dividend every year since 2014. Its five-year dividend-growth rate of 10% is solid. Its last dividend hike of 10.6% in February aligns with this growth rate as well. Its 2022 payout ratio is about 40% of its net income available to common shareholders. So, its dividend appears to be safe and sound.

CIBC stock

Canadian investors can also get a similarly attractive dividend yield from Canadian Imperial Bank of Commerce (TSX:CM).

CIBC is the fifth-largest Canadian bank by market capitalization. At $55.99 per share at writing, the bank stock trades at about 7.9 times earnings, which is a discount of roughly 20% from its long-term normal valuation. At this quotation, the blue-chip stock offers a dividend yield of almost 6.1%.

The bank’s trailing 12-month payout ratio is about 61% of its net income available to common shareholders. This payout ratio is higher than the normal level of about 50% because of higher provisions of credit losses (PCL).

On a more cautious economic outlook, the big bank is required to set aside more cash (the PCL) to prepare for a higher percentage of bad loans in a potential recession this year. Investors shouldn’t worry too much, though. When the economy improves, CIBC’s payout ratio should normalize.

Investors should note that CIBC has an even stronger track record of dividend payments than Manulife. The big bank stock has maintained or increased its dividend since at least fiscal 2003. For reference, its 10-year dividend-growth rate is 6.1%.

Given the lower valuation of income stocks right now. Investors should highly consider buying (more) solid dividend stocks like Manulife and CIBC, sit on the shares, and watch the dividend income roll in. For example, if you can get a 6% yield across a $100,000 dividend portfolio, you would earn $6,000 of dividend income in the first year. A $500,000 portfolio would earn $30,000 of income in the initial year. A $1,000,000 portfolio would earn $60,000 in the first year.

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.

Fool contributor Kay Ng has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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