To maximize your retirement income with dividend stocks, the earlier you start saving and investing, the better. Remember to focus on top dividend stocks that aren’t the highest yielders but have decent dividend-growth potential. Here are a couple of Canadian stocks that are reasonably priced.
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Get retirement income from TD stock now
Toronto-Dominion Bank (TSX:TD) is a quality big Canadian bank stock with a strong dividend-paying history. It has paid dividends for about 166 years. For your reference, its three-, five-, 10-, and 15-year dividend-growth rates are 7.2-9.7%, while its last dividend hike was solid at 7.9% in December.
TD stock is still about 19% below its peak in 2022. It has also shown support at about $77 per share. At $83.34 per share, the dividend stock trades at a good valuation for long-term investment. Specifically, it trades at a discount of about 15% from its long-term normal price-to-earnings ratio.
Additionally, it offers a safe dividend yield of 4.6%. Its payout ratio is estimated to be sustainable at approximately 46% of adjusted earnings this year. Moreover, it has a treasure chest of retained earnings that could serve as a buffer for dividend payments if needed.
The bank has above-average, long-term growth prospects among the big Canadian banks, which should drive above-average dividend growth as well, serving to maximize your retirement income. For instance, an investment in TD stock in 2010 had an initial yield of about 3.8%. The same investment now has a yield on cost of 11%, thanks to the bank’s dividend growth.
Canadian Tire stock
Retailer Canadian Tire (TSX:CTC.A) is another interesting dividend stock that can help maximize your retirement income with dividend growth. The Canadian Dividend Aristocrat has increased its dividend for about 12 consecutive years. For your reference, its three-, five-, 10-, and 15-year dividend-growth rates are 12.1-17.6%, while its last dividend hike was 6.2% in December.
It offers a safe dividend yield of 3.8%. Its payout ratio is estimated to be approximately 43% of adjusted earnings this year. Moreover, its retained earnings could serve as a buffer to pay for close to 13 years of dividend payments if needed.
Notably, a large mix of its products are durable goods. So, its earnings could drop during periods of recession. That said, its diluted earnings per share have been pretty resilient — only dropping as much as 11% in a single year in the past 20 years. A Canadian Tire stock investment in 2010 started with a dividend yield of about 1.5%. The yield on cost would be close to 10.2% today.
Analysts believe the retail stock is fairly priced today. Interested investors might nibble here and look to buy more shares at a better bargain during a recession, which will inevitably roll around through the course of an economic cycle.
Investor takeaway
As you can see, the sooner you start investing in stocks that will grow their dividends, the larger your yield on cost can grow the longer you hold the shares. The earlier you invest, the less money you will need to make the same amount of income in the future. Remember to try to buy stocks at discounts when they’re experiencing a temporary stumble from macro headwinds or short-term business issues.
