The Smartest Dividend Stocks to Buy With $500 Right Now

Got $500 to invest in Canadian dividend stocks? Here are three quality stocks for growing streams of safe dividend income.

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It has been a tough couple of years for many well-known Canadian dividend stocks. Many Canadian dividend stocks have utilized debt to finance heavy capital-investment plans. This was all good when interest rates were below 2%. It is not such a good plan when interest rates are 6% or more.

The best dividends are those generated from cash flows

The smartest dividend stocks are those that pay dividends out of their excess cash flow (after investments) rather than from a growing burden of debt. If you want reliable and growing dividends, it is key to look beyond the dividend yield of a stock.

Rather, look for a quality business that also happens to pay dividends. As the business grows, so too will the dividend. If you have $500 to buy some smart dividend-growth stocks, here are three to consider today.

A financial stock with massive dividend growth

goeasy (TSX:GSY) stock has been on a tear as of late. Its stock is up 13% in the past month. This company has provided an excellent combination of growth and income.

Over the past 10 years, earnings per share have risen by 919% (a 29% compounded annual growth rate (CAGR)). In that same period, its annual dividend increased by 1,029% (a 30.9% CAGR).

During this time, this stock’s dividend payout ratio has remained relatively stable, meaning earnings have been a driver of strong dividend growth. Despite its stock rising 256% in the past five years, goeasy stock still yields 2.7% today.

This company still has a large growth opportunity, especially as it expands its non-prime loan products to credit cards in 2024.

A buttress for any portfolio

Another dividend stock to buy with $500 is Canadian National Railway (TSX:CNR). It is like goeasy in that its dividend yield is not massive — it only yields 2% today.

Yet, CNR has an excellent “track” record of total returns for shareholders. It has increased earnings per share by 120% (9% CAGR) in the past 10 years and 686% (11.5% CAGR) over the past 20 years. Its annual dividend has risen by 216% (13% CAGR) over the past 10 years and 1,512% (15.7% CAGR) over the past 20 years.

Recently, CNR has faced some headwinds from weather, strikes, and a weak freight environment. However, the company continues to target 10% earnings per share growth in 2024.

The company has a strong balance sheet, a leading network, and a smart executive team. It should continue to deliver steady dividend growth and capital upside in the years to come.

A real estate stock with a growing dividend

Granite Real Estate Investment Trust (TSX:GRT.UN) is the one stock in this list with a higher dividend yield. It yields for 4.85% today.

It is the value pick on the list. Real estate stocks have struggled lately, and Granite is no exception. Yet, that is where the opportunity is.

Granite operates a very high-quality portfolio of industrial properties across Canada, the U.S., and Europe. It has a strong tenant mix, long-term leases, and an excellent market-leading balance sheet. It has a very stable business model.

Yet, this real estate investment trust trades at a considerable discount to its private market value. It has a great 13-year history of annually increasing its monthly distribution. At some point, interest rates will pull back, and this stock could have considerable upside when they do.

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 Robin Brown has positions in Goeasy and Granite Real Estate Investment Trust. The Motley Fool recommends Canadian National Railway and Granite Real Estate Investment Trust. The Motley Fool has a disclosure policy.

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