Canadian bank stocks, including Toronto-Dominion Bank (TSX: TD), have created massive wealth for long-term investors. In the last two decades, TD Bank stock has returned 368% to shareholders. After adjusting for dividends, total returns are closer to 900%. Comparatively, the TSX index has gained 444% in dividend-adjusted returns since May 2003.
Canadian banks are quite conservative compared to their counterparts in the U.S. But a cautious lending approach has allowed TD Bank and other big banks in Canada to maintain dividend payouts even during the financial crash of 2008–09 and the COVID-19 pandemic.
Moreover, TD Bank has increased its dividends by 10.5% annually in the last 25 years, which is remarkable for a cyclical company. It currently pays shareholders annual dividends of $3.84 per share, translating to a dividend yield of 4.7%.
TD Bank stock is vulnerable in the near term
Despite its market-thumping gains, TD Bank might underperform the broader markets in the near term due to the banking crisis in the U.S. and a tepid lending environment. As interest rates are estimated to remain elevated in the next 12 months, demand for loans across verticals might nosedive, impacting the top line and profit margins for TD Bank.
Moreover, default rates will also move higher as the cost of debt increases for mortgage, consumer, and corporate loans.
Analysts remain bullish on TD Bank stock and expect it to gain 16% in the next 12 months. But there is another TSX dividend giant that is well-positioned to deliver outsized gains in the upcoming decade.
Why you should buy this TSX dividend stock right now!
One of the largest players in the clean energy space, Brookfield Renewable Partners (TSX: BEP.UN) should be part of your equity portfolio in 2023. The global shift towards renewable energy solutions is all set to accelerate as countries aspire to drastically fight climate change and reduce carbon emissions.
Brookfield Renewable stock has already returned 17% annually to investors in the last five years and gained 372% since May 2013. Down 30% from all-time highs, BEP stock currently offers you a dividend yield of 4.3%.
Despite a sluggish environment globally, BEP increased its funds from operations (FFO) by 13% year over year in Q1 2023. Additionally, it has allocated US$8 billion towards new investments, which should drive future cash flows and dividends higher.
Over the years, BEP has successfully deployed capital to expand its base of cash-generating clean energy assets. It has also sold off legacy assets and invested the proceeds in high-growth markets to generate robust returns.
In the March quarter, BEP earned US$300 million from the sale of assets, indicating a return of more than 100% on the original invested capital. It now expects to generate US$4 billion via asset sales in collaboration with its partners, resulting in net proceeds of US$1.5 billion.
BEP generates a majority of cash flows from hydroelectric assets located in the Americas. But it also owns and operates wind, solar, and other energy distribution assets, which should support constant dividend increases in 2023 and beyond.
For instance, Brookfield Renewable aims to increase dividends between 5% and 9% annually, making it attractive to income investors. Shares of BEP are currently priced at a discount of 14% to consensus price target estimates.
