Investors looking to buy individual stocks should aim to create a basket of quality dividend-paying companies. Investing in dividend stocks allows you to create a reliable passive-income stream and benefit from long-term capital gains.
The best companies typically increase cash flows and earnings over time, allowing them to hike dividend payments consistently, which increases the effective yield. Given these factors, here are the two best dividend stocks beginner investors can buy in April 2023.
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Sun Life Financial stock
One of the best-performing TSX dividend stocks in the past decade, Sun Life (TSX: SLF) has returned 250% to investors after adjusting for dividends since April 2013. In this period, the TSX index has returned 131%.
Despite these outsized gains, Sun Life stock offers investors a tasty dividend yield of 4.6%. Its dividend payouts have risen by 7.5% annually in the last 20 years.
Priced at 10 times forward earnings, SLF stock is very cheap, given its adjusted earnings are forecast to expand from $6.27 per share in 2022 to $7.2 per share in 2024.
Valued at a market cap of $37 billion, the company has increased earnings by 9% annually in the last five years. Its payout ratio is also quite sustainable at 41%, allowing the company to reinvest in growth and strengthen its balance sheet.
Sun Life reported a net income of $3.06 billion in 2022 — an increase of 4% year over year. It experienced growth in its protection and health businesses, and a weak equity market negatively impacted the asset management business.
Sun Life’s LICAT (Life Insurance Capital Adequacy Test) ratio stood at 130%, which is calculated by dividing its available capital by the total required capital. A higher LICAT ratio indicates the insurance company is financially stable and has enough liquidity to meet the obligations of policyholders.
National Bank of Canada stock
Down 8% from all-time highs, National Bank of Canada (TSX: NA) offers investors a dividend yield of 4%. Since April 2013, NA stock has returned close to 300% to shareholders in dividend-adjusted gains, easily outpacing the TSX.
Bank stocks have remained volatile in the last 12 months due to multiple interest rate hikes, resulting in lower demand for mortgage, commercial, auto, and personal loans. Typically, banks are cyclical and underperform the broader markets in a bear market. But rising interest rates also allow bank stocks to benefit from higher profit margins.
In the fiscal first quarter (Q1) of 2023 (ended in January), National Bank reported a net income of $881 million — a decline of 5% year over year. Its adjusted earnings per share also fell to $2.49 in Q1 from $2.64 in the year-ago period.
National Bank explained revenue growth across business segments was offset by non-interest expenses and higher provisions for credit losses.
With a dividend-payout ratio of just 38%, National Bank has enough room to increase dividends in 2023. In the last 20 years, its dividends have risen at an annual rate of 9.2%, which is remarkable for a bank stock.
Priced at 10 times forward earnings, NA stock is forecast to increase earnings by 7% annually in the next five years. Given consensus price target estimates, National Bank stock is trading at a discount of almost 10% right now.
