$300 doesn’t seem like a lot to invest. In fact, if you were able to invest it for the long-term average Canadian stock market return of approximately 8%, you’d earn a minuscule amount of roughly $24 a year. Surely, the profits will be gone with the blink of an eye, especially given the recent high inflation we’ve experienced.
The idea is not to invest $300 and be done with it. Rather, Canadians should aim to save and invest regularly by picking stocks wisely and building a diversified portfolio over time.
It’s a smart move to buy dividend stocks, because you get to earn periodic returns from dividend income. This income can be used to pay the bills or reinvested, depending on your financial needs and goals.
Without further ado, here are some of the smartest dividend stocks you can buy right now.
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Pembina Pipeline
Pembina Pipeline (TSX: PPL) is a good dividend stock. It has an investment-grade balance sheet, marked by an S&P credit rating of BBB. It also has a solid track record of dividend payments, having maintained or increased its dividend for at least 20 years. For reference, its 10-year dividend-growth rate is 4.7%.
At $44.25 per share at writing, the large-cap energy infrastructure stock offers a nice dividend yield of 5.9%. Its sustainable trailing 12-month (TTM) payout ratio was 71% of free cash flow and 58% of net income to common shareholders.
Notably, the company switched from paying a monthly dividend to a quarterly one this year. Analysts believe the undervalued stock trades at a discount of approximately 15%. So, it’s possible for investors to earn a juicy dividend and experience some capital appreciation as well.
Bank of Nova Scotia
Bank of Nova Scotia (TSX: BNS) is also a safe high-yield stock. At $68.19 per share at writing, it offers a dividend yield of north of 6%. As one of the Big Six Canadian banks that enjoys the lion’s share of the market in an oligopoly structure, BNS stock has a solid track record of staying profitable and paying out dividends. Specifically, it has paid dividends every year since 1833.
For your reference, Scotiabank’s five- and 10-year dividend-growth rates are 5.9% and 6.4%, respectively. Its TTM payout ratio was approximately 60% of net income to common shareholders. So, it’s possible for it to experience slow dividend growth or even a dividend freeze in the near term, especially if Canada were to experience a recession this year, as anticipated by many economists. Based on the international bank’s durable earnings, it should have no problem maintaining its dividend, though.
Analysts believe the bank stock is about fairly valued. A reversion to growth can drive valuation expansion on the stock that could lead to upside of about 33%.
Food for thought
$300 may seem like a small amount to invest. What if you can invest $300 every year, every few months, every month, or even every week? Compound interest can be super powerful with regular savings and your ability to achieve satisfactory long-term returns.
Slow and steady wins the race. Consider automating the process with the best drip stocks.
