Quality dividend stocks offer investors a low-cost way to create an alternative income stream. The best dividend stocks typically maintain their payouts across market cycles and increase them over time, enhancing the effective yield in the process.
Here are two top dividend stocks TSX investors can buy and hold forever.
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National Bank of Canada stock
Valued at $34 billion by market cap, National Bank of Canada (TSX:NA) should be on top of your shopping list today. Despite a tepid lending environment in 2023, the National Bank of Canada reported a net income of $768 million, up 4% year over year in the fiscal fourth quarter (Q4) (ended in October). Its adjusted earnings also rose from $2.14 per share in Q4 to $2.08 per share in the year-ago period.
The company’s stellar results were driven by growth across business segments, offset by higher non-interest expenses and an increase in provisions for credit losses.
National Bank of Canada’s non-interest expenses in fiscal 2023 rose 11% to $5.8 billion as compensation and employee benefits increased 5% to $3.45 billion, primarily due to wage growth.
It ended fiscal 2023 with almost $397 million in provisions for credit losses, up from $145 million in the year-ago period. The increase was due to the growth in the loan portfolios, migration of credit risk, and macro headwinds such as rising inflation, higher interest rates, and geopolitical instability, reflecting an uncertain macro outlook.
National Bank of Canada offers shareholders an annual dividend of $4.24 per share, translating to a yield of 4.2%. In the last 29 years, it has raised dividends by more than 11% annually, which is exceptional for a company part of a cyclical sector.
Priced at 10.2 times forward earnings, NA Bank stock is very cheap and should derive outsized gains to shareholders if market sentiment improves. It has already returned 972% to shareholders in the last 20 years compared to the 360% returns of the TSX index.
Tourmaline Oil stock
Valued at $21 billion by market cap, Tourmaline Oil (TSX:TOU) is one the largest energy companies in Canada. It explores and develops oil and natural gas properties in the Western Canadian Sedimentary Basin.
Tourmaline Oil pays shareholders an annual dividend of $1.12 per share, indicating a dividend yield of 1.84%. These payouts have risen by 23% annually in the last six years. Additionally, Tourmaline also pays shareholders a special dividend, which is tied to its cash flows.
In Q3 of 2023, it generated free cash flow of $332.3 million, $332.3 million allowing it to pay a special dividend of $1 per share. In the last four quarters, its total dividends stood at $6.52 per share, translating to a yield of 9%.
Tourmaline forecasts it will end 2023 with a free cash flow of $1.9 billion and $880 million in net debt, providing it with enough flexibility to strengthen its balance sheet and raise dividends higher.
Priced at 9.8 times forward earnings, TOU stock trades at a compelling discount, given its high dividend payout. Analysts covering the TSX energy stock remain bullish and expect it to gain over 30% in the next 12 months.
