Are you feeling down because your stock prices are down? Unless you’re planning to buy or sell shares of a stock, I encourage you to focus less on stock prices. Instead, count your dividends! By tallying up the dividend income you’re receiving, you can be less emotional and more rational about your investing decisions.
Not every dividend stock pays safe dividends. So, make sure to focus on safe dividend investing, which includes not overpaying for stocks, not just dividend safety. Dividends collected may be small in the beginning, but they can grow like a snowball rolling down the hill, especially when you incorporate dividend growth and contributions from regular savings.
The Rule of 72 approximates that dividend growth of 6% per year will double your dividend income about every 12 years. New contributions from your savings to your dividend portfolio will only accelerate your dividend income growth.
This is why I made it a habit to record additional annualized dividend income I’ll receive on new purchases, as it encourages me to focus on dividend generation and pay less attention to the changing stock price. What’s more essential is recording the actual dividends I receive every month in a spreadsheet and ultimately tallying up how much dividend income I receive in a year.
Here are some of my favourite stocks that are down in the last 12 months but have outperformed the Canadian stock market in the long run. Importantly, they trade at good valuations for purchase today and pay out safe dividends that will grow over time.
TD and XIU Total Return Level data by YCharts
TD stock
Toronto-Dominion Bank (TSX:TD) stock has declined about 7.5% in the last 12 months. However, it has outperformed the Canadian stock market, using iShares S&P/TSX 60 Index ETF as a proxy, by about 42% in the last decade.
For illustrative purposes, $10,000 invested in TD stock about 10 years ago would have paid out about $6,022 in dividends. TD stock continues to pay out safe dividends with a payout ratio of approximately 62% this year.
The same shares would pay out annualized dividend income of close to $857 today. Its payout ratio is higher than normal, but its earnings are still well over its dividend payments. Furthermore, it has a treasure chest of retained earnings that could act as a buffer for its dividend.
At $80.37 per share, TD stock trades at a discount of roughly 17% from its normal valuation and provides a decent dividend yield of almost 4.8%. For your reference, the Canadian bank stock’s five-year dividend-growth rate is 8.7%, which is quite good.
BIP.UN Total Return Level data by YCharts
Brookfield Infrastructure Partners
Brookfield Infrastructure Partners (TSX:BIP.UN) stock is down by about 23% in the last 12 months. However, it has outperformed the Canadian stock market by two times in the last decade.
At $43.25 per unit, BIP.UN is discounted by about 29% and offers a nice yield of 4.8%. The depressed units provide a fabulous opportunity to buy the wonderful business, which consists of a globally diversified portfolio of quality, long-life infrastructure assets that move or store energy, water, freight, passengers, and data. Notably, the dividend stock pays out U.S. dollar-denominated cash distributions so, in Canadian currency, Canadians would get more income when the greenback is strong against the loonie.
For illustration, US$10,000 invested in BIP.UN stock about 10 years ago would have paid out about US$7,852 in dividends. The same units would pay out annualized cash distributions of close to US$1,079 today. The top utility stock continues to pay out safe cash distributions with a payout ratio of 68% year to date. For your information, it targets a payout ratio of 60-70%.
