Passive Income: Potentially Double Your Dividend Yield in 5 Years

Here’s why investing in quality dividend-growth stocks such as goeasy may help you double your yield in the next five years.

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Investing in quality dividend-growth stocks can help you benefit from a steady stream of dividend income as well as long-term capital gains. Moreover, if the dividend income rises in line with earnings, your effective yield will improve significantly over time.

For instance, a $1,000 investment in a stock that offers a forward yield of 4% will help you earn $40 in annual dividends. If the payout increases by 11% each year, your annual dividend income will surge to $320 in two decades. It suggests the effective yield has risen to 32% from 4% in 20 years.

To generate a growing base of dividend income, you need to identify companies that are positioned to boost cash flows across market cycles. There are a few TSX dividend stocks that have increased payouts by more than 15% annually in the last 10 years, enabling shareholders to enjoy a higher yield.

Here are two such TSX stocks that can help you double your dividend yield in the next five years.

goeasy stock

Valued at $2.6 billion by market cap, goeasy (TSX:GSY) currently offers shareholders an annual dividend of $3.84 per share, translating to a forward yield of 2.5%. While goeasy’s dividend yield is not too attractive, the company has increased the payout by 16.6% in the last 17 years, which is impressive.

goeasy is part of the lending industry, which is cyclical. Interest rate hikes in the last two years have led to a tepid lending environment, dragging GSY stock lower by 30% from all-time highs.

Despite an uncertain macro economy, goeasy ended the third quarter (Q3) with $722 million in loan originations, an increase of 13% year over year. The company ended Q3 with a consumer loan portfolio of $3.43 billion, up from $2.6 billion in the year-ago period.

Its stellar metrics allowed goeasy to increase sales by 23% to $322 million in the September quarter. Priced at nine times forward earnings, goeasy stock is really cheap, given its earnings are forecast to grow by 20% this year.

Analysts remain bullish and expect shares to surge by 18% in the next 12 months.

Canadian Natural Resources stock

An energy giant, Canadian Natural Resources (TSX:CNQ) stock offers you a dividend yield of 4.6%. The TSX stock pays shareholders an annual dividend of $4 per share, and these payouts have increased by 22% annually in the last 23 years, which is exceptional for an oil and gas company.

Valued at $94 billion by market cap, CNQ is among the largest companies in Canada and continues to invest heavily in growth projects. In 2024, CNQ’s drilling program is weighted towards longer cycle projects in the first half of the year. In the second half, it will focus on shorter-cycle development opportunities as it expects commodity prices to stabilize.

CNQ will deploy $5.4 billion towards capital expenditures in 2024, as it aims to increase annual production growth by at least 4% through 2025.

Armed with an investment-grade balance sheet, CNQ ended Q3 with a debt-to-adjusted-funds-flow ratio of 0.7 times. It is also nearing a net debt level of $10 billion, after which CNQ will return 100% of free cash flow to shareholders.

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 recommends Canadian Natural Resources. The Motley Fool has a disclosure policy.

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