Dividend Aristocrats, also counted among the blue-chip stocks, are safe choices. But the right Aristocrats offer so much more than safety endorsed through their industry leadership position and financial stability. They may also offer growth potential to match their dividend increments. This way, your income and your capital invested in the company can both stay ahead of inflation.
A utility company
Utility stocks have an additional layer of safety — their business model. Utilities are among the most necessary expenses for most individuals/consumers, which makes their financials quite healthy. Since utilities are a permanent necessity, the stocks also tend to be more resilient to market headwinds.
Fortis (TSX:FTS) stands out even among the other utility stocks in Canada. As the second-oldest Aristocrat in the country, it’s merely a year away from becoming Canada’s second Dividend King. The company has raised its payouts for 49 consecutive years and plans on continuing this, and the projections for the next few years (till 2027 at least) suggest a yearly payout growth between 4% and 6%.
It’s currently offering a 3.8% yield. The stock is modestly overvalued and has a history of steady growth. In the last decade, the stock has risen by about 76%. The 7.6% annualized growth has been more than enough to counteract the impact on inflation during this period.
Considering its solid dividend history, stable payout ratio (about 75%), and healthy financials, it seems highly unlikely that the company will slash or suspend its payouts anytime soon.
A railway company
Canadian National Railway (TSX:CNR) is among the top stocks currently trading on the Canadian stock market as well as one of the country’s largest (by market capitalization) companies. With a century of history backing up its services to the country and an impressive railway network that connects three major North American ports, it can be considered a relatively safe investment.
It’s also a good pick if you analyze it from an ESG (environmental, social, and governance) investing perspective. It has taken several measures to reduce its emissions and gets ESG points for transporting cargo associated with renewables and clean energy sources.
The company also offers a wide range of supply chain and logistics services and has its own massive trucking wing, which allows it to expand its presence far beyond its rails. It’s also a powerful growth stock.
The stock has risen about 209% in the last 10 years, and if we add the dividends, the overall returns rise up to 266%. The company doesn’t get a lot of points for its yield, which is 1.9% right now. But its position as a Dividend Aristocrat is quite strong.
After growing its payouts for 27 consecutive years, the company has already entered the list of U.S. Dividend Aristocrats as well, where the criterion is much more stringent than it’s in Canada. The dividends are backed by a very healthy payout ratio of 38%.
The two companies offer you a healthy mix of capital appreciation and dividend growth. As blue-chip stocks with safe business models, they are also relatively safe long-term investments. So, diverting a healthy amount of capital to the two companies and holding them for a decade or two might be a viable investment strategy.