From Growth to Income: The Shift in Canadian Dividend Investing Trends

Blue-chip TSX dividend stocks such as Brookfield Asset Management can help you deliver outsized gains in the upcoming decade.

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In the past decade, companies had access to lower-cost debt due to a loose monetary policy. Several central banks reduced interest rates soon after the financial crash of 2008-09 to boost consumer spending and revive the economy. This allowed enterprises to gain access to capital at a low cost and fuel their expansion plans.

Lower interest rates enabled growth stocks that were part of expanding addressable markets to deliver outsized returns. For instance, between March 2009 and December 2021, the tech-heavy Nasdaq Composite Index returned over 400% to shareholders, compared to the 278% returns of the S&P 500 Index.

However, central banks were forced to increase interest rates in the last 20 months, as inflation touched multi-year highs in 2022. This resulted in a tepid lending environment and lower profit margins for companies, making investors nervous.

As it is much more expensive to access debt capital in 2023, growth stocks have been pummeled in recent months due to a sluggish macro environment, decelerating top-line growth rates, and narrowing profit margins. Instead, investors are now bullish on companies that earn predictable cash flows and can reinvest in growth projects organically. Due to consistent profits, these companies also pay investors a tasty dividend yield, allowing you to create a stable source of passive income.  

Here are two such profitable dividend stocks Canadians can buy and hold right now.

Brookfield Asset Management stock

Valued at a market cap of $17 billion, Brookfield Asset Management (TSX:BAM) stock offers shareholders a dividend yield of 4%. A global alternative asset manager, Brookfield aims to grow its earnings and dividends between 15% and 20% annually through 2028, making it one of the most enticing bets on Bay Street.

With more than US$850 billion in assets under management or AUM, Brookfield Asset Management invests in sectors such as clean energy, infrastructure, real estate, credit, and private equity. It expects to more than double the total AUM to US$2 trillion in the next five years with fee-bearing capital of US$1 trillion. Currently, its fee-bearing capital is less than US$440 million, an increase of over 200% in the last five years.

Priced at 20 times forward earnings, BAM stock trades at a discount of 20% to consensus price target estimates.

Alimentation Couche-Tard stock

Among the largest companies in Canada, Alimentation Couche-Tard (TSX:ATD) is valued at $75 billion by market cap. ATD owns and operates a network of more than 14,400 convenience and mobility stores in 25 countries. It is one of the largest independent convenience store operators in the U.S. and leads the market in countries such as Canada and Ireland.

ATD stock has returned over 4,000% to shareholders in dividend-adjusted gains in the past two decades, creating massive shareholder wealth. Despite its outsized gains, ATD stock is priced at 16.7 times forward earnings, which is quite cheap.

The company aims to end fiscal 2028 with earnings before interest, tax, depreciation, and amortization of US$10 billion, up from US$5.8 billion in fiscal 2023 (ended in April). A widening earnings base should allow ATD to increase dividends in the upcoming decade. Since November 2014, ATD has raised dividends by 25% annually.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alimentation Couche-Tard. The Motley Fool recommends Brookfield Asset Management. The Motley Fool has a disclosure policy.

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