Investing in quality dividend-paying stocks is an excellent strategy for investors looking to create a steady stream of passive income. The Toronto Stock Exchange has several such dividend stocks that have strong fundamentals and a growing earnings base.
The best dividend stocks are those that increase their payouts every year, enhancing the effective yield over time. Due to rising cash flows and earnings, these dividend stocks also deliver capital gains to shareholders.
Here are two such TSX dividend stocks that Canadian investors can consider buying right now.
EQB stock
Valued at $3.5 billion by market cap, EQB (TSX:EQB) pays shareholders an annual dividend of $1.60 per share, translating to a yield of 1.73% which is not too high. However, investors should note that the Canadian bank has raised its payouts by 22% annually in the last 19 years.
Due to its consistent earnings base, EQB stock has returned 716% to shareholders since its IPO (initial public offering) in 2004. After adjusting for dividends, the total returns are more than 1,000%.
EQB reported an adjusted return on equity of 17.1% in fiscal 2023 (ended in October) while its adjusted earnings per share stood at $9.40. So, EQB stock is priced at 10 times trailing earnings, which is very cheap, given analysts expect earnings to expand by 20% annually in the next five years.
With $111 billion in total assets and $20 billion in loans under management, EQB stock continues to outpace the broader markets due to its focus on margin expansion, effective risk management, and accretive acquisitions.
Its net interest margin expanded by one basis point to 2% in the fourth quarter (Q4), while customer growth stood at 30% year over year at 400,000.
EQB has a well-capitalized balance sheet and ended fiscal 2023 with a CET1 (common equity tier-one) ratio of 14%. The ratio is used to measure a bank’s ability to withstand an economic downturn, and a higher ratio is favourable.
Despite its outsized gains, analysts remain bullish on EQB stock due to its compelling valuation and expect it to gain more than 12% in the next 12 months.
Nuvei stock
Another high-growth dividend stock is Nuvei (TSX:NVEI), a fintech company that offers you a yield of 1.6%. Down 80% from all-time highs, Nuvei stock trades at a cheap multiple, allowing you to buy the dip.
Despite a sluggish macro environment, Nuvei continues to grow at an enviable pace. The total volume of payments processed on its platform grew by 72% year over year to US$48.2 billion in Q3 of 2023. Moreover, e-commerce accounted for 88% of the total volume in Q3.
Nuvei also grew sales by 55% year over year to US$304.9 million in Q3, up from US$197.1 million in the year-ago period.
Its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) rose by 36% to US$110.7 million in Q3, indicating a margin of 36.3%. In the year-ago period, Nuvei’s EBITDA margin stood at 41.2%.
Priced at 11.8 times forward earnings, Nuvei stock is very cheap and trades at a discount of 20% to consensus price target estimates.
