2 Dividend Stocks to Use as Building Blocks for Lasting Wealth

Dividend stocks that are raising their dividends over time could create lasting wealth for investors. Here are a couple of examples.

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Just because a company is profitable, doesn’t mean it has to share its profits. That’s why stocks are considered to be shareholder-friendly when they pay dividends. Although share buybacks are considered to be shareholder-friendly as well, one potential problem is that businesses may buy back shares when the business and the stock are doing well, which could result in overpaying for the shares and destroy shareholder value. In this sense, dividends may be a better way to return value to shareholders.

Here are a couple of dividend stocks that can be used by investors as building blocks for lasting wealth.

Brookfield Asset Management

Brookfield Asset Management (TSX:BAM) was spun off from Brookfield in late 2022. It may have a short trading history, but it has a long track record (over a century!) of owning and operating assets and businesses.

BAM stock has its share of volatility, but the dips have turned out to be excellent opportunities to accumulate shares. The first meaningful sell-off in late 2022 was likely from investors who didn’t want to hold a small position in BAM after shares were spun off from Brookfield.

The second correction in September to October 2023 was a general market correction. Since the bottom of the late 2023 sell-off, the stock has climbed close to 38%, which is more than double the market’s appreciation of approximately 14%.

Dividend raise

The global alternative asset manager is doing well. Otherwise, it wouldn’t have raised its dividend by 18.8% this month. So far, it has amassed over US$900 billion of assets under management. Brookfield Asset Management manages a diverse portfolio of assets across renewable power and transition, infrastructure, private equity, real estate, and credit. From about half of these assets, it earns management fees. Over the next five years, the asset manager plans to double its fee-bearing capital to close to US$1 trillion. It also earns performance fees for meeting certain investment targets.

BAM invests alongside its clients to align with their interests. Many of the assets it invests in generate quality cash flows. Importantly, its investments have historically delivered superior long-term returns with below-average volatility. Furthermore, its access to large-scale capital enables it to invest in sizeable, premier assets and businesses across asset classes and more than 30 countries with little competition.

At the recent price of about $55 per share, BAM stock appears to be fairly valued and offers a decent dividend yield of approximately 3.7%. There’s a strong demand for BAM’s services. Therefore, the capital-light business could potentially increase its dividend by at least 15% per year over the next three to five years.

Alimentation Couche-Tard

Alimentation Couche-Tard (TSX:ATD) is a business that seems to quietly outperform and stealthily move higher. The global convenience store consolidator has proven to generate resilient earnings through the economic cycle. Its earnings have headed higher in the long run, which has also driven the stock higher as well as fuelled dividend growth.

For example, over the last 15 years, ATD’s dividend grew at a compound annual growth rate of approximately 23%! It is still going strong with the most recent dividend hike at 25% in November. Some analysts believe that the growth company will lose steam at some point, as mergers and acquisitions (M&A) are one of its key growth drivers.

The convenience store operator announced that it was reducing its reliance on M&A which will, in the foreseeable future, contribute about half of its growth, with the remaining half driven organically. For now, management continues to pursue M&A opportunities in the fragmented industry. At the recent price of $85 per share, the stock appears to be fully valued.

Interested investors could seek to buy shares in these dividend stocks on days of market weakness.

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 Kay Ng has positions in Alimentation Couche-Tard, Brookfield Asset Management, and Brookfield Corporation. The Motley Fool has positions in and recommends Alimentation Couche-Tard. The Motley Fool recommends Brookfield, Brookfield Asset Management, and Brookfield Corporation. The Motley Fool has a disclosure policy.

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