Here are three dividend stocks investors could keep forever if they wanted to. It’s always a more secure way to invest when you target safe income generation. You can reinvest the income when you don’t need it, and when you do need the cash, you can use the income to help pay the bills.
Royal Bank of Canada
The big Canadian banks are some of the oldest dividend payers in Canada. They have a looong track record of paying dividends. Specifically, Royal Bank of Canada (TSX:RY) has paid dividends since 1870! Its 3-, 5-, and 10-year dividend growth rates are solidly above 7%. The dividend growth was healthily supported by earnings growth as the bank witnessed its adjusted earnings per share rise at a compound annual growth rate of about 7.5% over the last decade.
At the recent price of about $132 per share, RBC stock trades at a reasonable price-to-earnings ratio (P/E) of roughly 11.6. In other words, the stock is fairly valued and should grow in the long run at a rate that’s more or less close to its earnings growth. Additionally, it offers a safe dividend yield of almost 4.2%.
Let’s make a conservative estimate of its earnings growing at a clip of 6%. Then, we could approximate long-term returns of around 10% when combined with the dividend. When the stock corrects around recessions, long-term investors should highly consider adding more shares on the cheap to lock in more income at a higher dividend yield.
In comparison to RBC, Brookfield Infrastructure Partners L.P. (TSX:BIP.UN) is a young company.
Brookfield Infrastructure Partners
The global infrastructure limited partnership was founded in 2008 when it was spun off from its parent company, Brookfield Corporation. However, its history goes way back, as Brookfield Corp.’s predecessor was founded more than a century ago.
Brookfield Infrastructure Partners has not disappointed its long-term investors. For example, over the last 10 years, it delivered total returns of close to 15% per year! This is an extraordinary return!
Much like RBC’s dividend, Brookfield Infrastructure Partners’s growing cash distribution should persuade investors to keep the units forever. The top utility stock’s 10-year cash distribution growth rate is 8.3%. Going forward, management is committed to growing the cash distribution by 5-9% per year.
BIP owns and operates quality infrastructure assets in the sectors of transportation, utility, midstream, and data. Management looks for quality assets to invest in at good valuations, optimizes those assets, and potentially sells them after the value-add.
In the third quarter report press release, it stated, “The market backdrop has created a strong environment for capital deployment, with returns on new investments expected to be well in excess of our 12-15% target. Our 2023 deployment is expected to provide us with some of the best risk-adjusted returns we have seen in the last decade.”
The stock offers a cash distribution yield of 4.8% at the recent quotation of $42.61. Analysts also believe the stock trades at a discount of approximately 19%, which is not bad.
Another dividend stock that trades at a good valuation is Manulife Financial (TSX:MFC).
Manulife
The life and health insurance stock has paid an increasing dividend for a decade, which is a pretty good track record. In the period, its dividend growth rate was 10.9%, which is above average. Importantly, at $29.53 per share at writing, it trades at a low P/E of 8.6. This suggests that investors don’t expect much of the stock.
At the recent price, Manulife stock offers a dividend yield of 4.9% – a dividend that’s healthily covered by earnings. Even without valuation expansion, it is possible for Manulife stock to deliver total returns of close to 12% per year if it’s able to grow its earnings by about 7% per year.
