If you want a dividend stock that can last for years and even decades, it is crucial to look beyond just the size of the dividend yield. Dividend yield is nice for a quick, immediate return, but a dividend that is too large can also endanger the long-term sustainability and growth of a business.
Companies only have finite cash flows to either re-invest in the business or pay a dividend. It is very hard to grow without re-investing in the business. There is a very fine balance between growing and returning cash to shareholders.
If you want passive-income longevity, high-quality businesses will tend to navigate this balance very effectively. Here are three top dividend stocks that could manage the balance of growing their business and paying their dividends for many years.
Brookfield Infrastructure: A dividend stock with forever assets
Brookfield Infrastructure Partners (TSX:BIP.UN) is an ideal lifetime dividend stock. It owns long-life assets like ports, railroads, cell towers, natural gas plants, pipelines, home utilities, and transmission lines. As society expands, demand for crucial infrastructure will only grow. Brookfield Infrastructure is exceptionally well positioned to benefit over the long term.
It has a counter-cyclical investment strategy. When asset prices are depressed and cheap, it scoops up assets. It then invests in the businesses and turns them into cash cows. It either reaps the income or sells the assets when the market turns optimistic.
This has resulted in around 13% total annual returns over the past 10 years. Over that time, it has grown both its funds from operation (FFO) per unit and its distributions by around 8% a year. Today, Brookfield stock earns a 4.33% dividend yield, which is well covered by cash flows.
Canadian Natural: An energy stock with decades of dividends ahead
You may not consider an energy stock a forever dividend stock, but Canadian Natural Resources (TSX:CNQ) has to come close. The company has grown its dividend by a +20% compound annual growth rate over 23 years. That is impressive by any metric.
Canadian Natural has become established as an energy production machine. It can produce oil for US$30 per barrel, which means it generate a huge amount of cash when oil prices are above that. It doesn’t hurt that this company has over 30 years of energy reserves that it can unlock at very little cost.
Last year, the company raised its dividend twice, along with paying a special $1.50-per-share dividend. Right now, it yields 4.5%. Chances are very high there will be additional shareholder rewards to come.
Fortis: Nearly 50 years of dividend growth
If you are looking for ultra-safe income for a lifetime, then Fortis (TSX:FTS) has to be on the list. If it can increase its dividend in 2023 (which is likely), it will have hit 50 years of consecutive dividend increases. That is one of the best dividend-growth track records in Canada.
Fortis is a force of consistency. Its job is to provide safe and reliable energy transmission and distribution services in its regulated jurisdictions. It takes the same approach to managing its financials.
The company has delivered an 8.4% total average return over the past 10 years. It has a prudent strategy to keep growing both its earnings and dividends by the low to mid-single digits for years ahead.
Today, this dividend stock earns 3.8%. If you give it another 10, 20, or even 50 years to compound, its dividend will likely be much, much higher.
