Investing in dividend stocks offers many advantages for investors, especially in the current uncertain market environment. Of course, dividend stocks such as companies like Canadian Tire (TSX:CTC.A) or Dollarama (TSX:DOL) offer investors passive income. However, dividend stocks also offer investors a level of resiliency.
For a stock to pay a dividend, it needs to have a well-established business that it’s constantly earning a profit.
Therefore, high-quality dividend stocks are some of the best investments to make today, especially as higher-risk non-dividend stocks continue to face pressure in this economic environment.
However, while both Dollarama and Canadian Tire are retail stocks, and both have been impressive businesses for years, deciding which stock is right for your portfolio requires significant consideration considering the differences between the two.
Both stocks are, of course, top growth stocks to own for the long haul. However, because Dollarama is a discount retailer, it certainly has more resiliency in the current environment and could actually continue to benefit from a struggling economy.
And while there is no immediate concern about the devastating impacts of a potential recession on the horizon, Canadian Tire is more likely to see negative effects than Dollarama.
Understanding that Dollarama is the more defensive of the stock of the two is essential. However, for most investors, it won’t be the most important factor in making your decision, especially since these are short-term issues.
If anything, Canadian Tire’s vulnerability means you’re likelier to buy it at a better discount than Dollarama stock over the next few years, especially today.
If you’re looking for a high-quality dividend stock that you can buy and hold in your portfolio for years, here’s what to consider when deciding between Dollarama and Canadian Tire stock.
Dollarama is one of the best defensive growth stocks you can buy now
Over the last year, while many stocks have struggled as surging inflation has impacted the economy, Dollarama has shown just how defensive it is by being positively impacted by the environment.
Therefore, while most companies trade at least at some discount, Dollarama still trades just 2% off its 52-week high.
Canadian Tire stock, however, has been cheaper than it is today. However, even after it’s rallied to start the year, it still trades undervalued in this environment.
If you’re looking for a more defensive stock that can potentially benefit in the current market environment, Dollarama may be the better stock for you, but you’ll have to pay a growth premium. But if you’re looking for a high-quality, long-term stock that you can buy at a discount, Canadian Tire gets the edge.
Each stock’s price and relative value is a significant factor to consider. However, there are other considerations investors need to take into account.
For example, while Dollarama stock could offer more growth potential in the near term and is more of a defensive stock, it also has a much lower yield than Canadian Tire.
Currently, Dollarama stock offers investors a yield of just 0.34%, while Canadian Tire’s yield is north of 4%. If you’re looking to buy a stock that earns you significant passive income, Canadian Tire looks like the better choice.
Canadian Tire is an attractive stock for passive-income seekers
While Canadian Tire stock offers more passive income, it’s worth noting that investors expect it to grow its business at a slower rate than Dollarama over the next few years.
Analysts expect Dollarama to see a 10% increase in sales over the next 12 months and another 8.1% increase the following year. Meanwhile, Canadian Tire is expected to see its sales stay flat this year or slightly decline by less than half a percent before increasing by 4% next year.
For investors, the main question is, would you rather buy Dollarama, a safer stock with more growth potential but a smaller dividend, or Canadian Tire, a solid company with a bit less growth potential but a higher dividend?
Both stocks are on the Canadian Dividend Aristocrats list, and both have increased their dividends each year for 12 consecutive years. Therefore, since both are high-quality dividend stocks, deciding which is the better stock to buy depends on how they fit into your investing strategy.
