Just like all other assets, the pandemic also had a detrimental effect on dividend stocks, affecting the passive-income-generating potential of many investor portfolios. However, now that it is gone and the market is returning to its pre-COVID performance, it is the right time to purchase dividend stocks and reap the benefits of capital generation.
Indeed, the question that always arises in such cases is how to choose the right dividend stock. Companies need to have well-planned investment strategies, which can help generate enough income to cover dividend payouts in the long run.
In this regard, there are two Canadian stocks that are leading the way. Here they are.
Fortis
Fortis (TSX:FTS) has remained a top dividend growth stock on the TSX and my top pick in this regard, announcing yet another dividend increase in of 4.4% in its fourth-quarter (Q4) 2023 report. This hike marks 50 continuous years of dividend payment increases by the company.
Over the past decade alone, Fortis’s annual dividend payments have increased from $1.20 per share to $2.26 per share. That’s equivalent to an annual increase of roughly 6.5% over this period. Impressive, indeed.
Fortis’s rock-solid business model, providing key regulated utility services to a captive customer base, allows the company to increase its dividends over time in line with its allowed price hikes. Thus, this stock has been among the most stable long-term performers in the market in good times and bad. I don’t expect that to change anytime soon.
One other key factor investors should consider is that Forits has also recently initiated an at-the-market (ATM) equity program. This program allows the company to issue common shares with a valuation of up to $500 million from its treasury periodically.
This move will grant Fortis enough financing flexibility to fund its capital programs. Therefore, the company can continue making profitable investments, ensuring sustainable long-term dividend payments.
Toronto-Dominion Bank
Toronto-Dominion Bank (TSX:TD) has recently paid out a dividend of $0.96 per share for the most recent quarter. This distribution translates into a payout ratio of around 45% (also healthy) and a dividend yield of 4.7%, which is significantly higher than many of its peer banks, particularly smaller operators.
One of the key reasons many long-term investors like TD is the company’s strong total return profile. In addition to solid dividend distributions, TD has continued to grow over the years with a very impressive long-term stock chart. Of course, the past year has not proven to be favourable for TD stock, given the macro headwinds which persist right now. But for those long-term investors who previously bought during difficult times, such investments have almost always proved to be the right move.
In addition to a strong dividend yield and growth profile, TD has also returned value to shareholders via buybacks. This past quarter, the company announced a plan to buy back up to 90 million of its common shares. That represents almost 4.9% of its outstanding shares and will enable the remaining shareholders to gain a higher share of the company’s profits.
