The only thing better than traditional dividend plays or growth stocks, I think, has to be dividend-growth stocks. Indeed, they combine the best of both worlds with a nice, growing dividend and a reasonable amount of (likely predictable) earnings growth over time. Indeed, to fund steady dividend growth, you’re going to need a company that can also increase free cash flows steadily over time.
Now, such companies don’t need to grow the top and bottom line by leaps and bounds, like some of the mature technology firms out there. But they do need to have a moat that’s wide enough to protect economic profits and their ability to grow at a steady pace over time. Indeed, a predictable, well-protected cash flow stream can be worth its weight in gold! Further, such dividend growth stocks are a far better investment than gold itself!
Provided you buy a top-tier dividend-growth play at a fair (or even cheap) price, I think today’s new investors can do well in almost any market environment. In the long run, investors will tackle good times, bad times, and mixed times. And it’s vital for dividend-growth plays to fare well, not just in good (or mixed) times but bad times as well.
As such, it’s a nice bonus for dividend growers to have some degree of non-cyclicality. Indeed, cyclical stocks can really boom in strong economies, only to go bust once the next period of economic stagnation hits.
So, if you have a wide-moat firm that can fare well in all seasons, you may have a dividend-growth stock that’s worthy of a permanent or semi-permanent spot right at the core of your TFSA (Tax-Free Savings Account) portfolio. In this piece, we’ll examine two such names!
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CN Rail
CN Rail (TSX:CNR) is one of my favourite dividend growth stocks to own for years at a time. The railway business entails a ridiculously wide moat. And as CN Rail looks to extend its already impressive rail network, I believe the firm’s moat only stands to get wider! Indeed, there’s some degree of cyclicality when it comes to any rail company.
However, CNR stock hasn’t performed like a cyclical, even during periods of recession. CN Rail tends to recover quickly, given its role in helping an economy run effectively. So, even if the next downturn strikes hard, I expect CNR shares to outperform the TSX Index by a nice margin. There are tons of reasons to hold CNR through even the hardest times, given its predictable dividend growth and the firm’s ability to navigate through all sorts of economic conditions.
If a recession hits in 2024, I’d be more than happy to buy more CNR stock on a dip!
Enbridge
Enbridge (TSX:ENB) is another great dividend grower that deserves TFSA investors’ respect. Like CN, Enbridge has increased its payout, even in a tough industry environment. Though it’s an energy transportation firm (a midstream player), it’s not nearly as choppy as the likes of an oil producer.
In simple terms, the company moves energy from A to B, making day-to-day oil price moves less remarkable or material for the firm. As shares climb higher again, I’d look to stay aboard and collect the juicy 7.63% dividend yield. It’s a dividend growth giant in Canada and one worth looking into if you seek passive income and growth!
