If you have extra savings lying in a low-interest bank account, you might be missing out on an opportunity to generate passive income and see your savings grow faster over time. Investing in dividend stocks can be a smart way to turn your savings into a regular source of cash that you can use for your living expenses, retirement goals, or reinvestment. By holding quality dividend stocks in your portfolio, you could enjoy the benefits of both capital appreciation and dividend income.
However, you may want to be careful while picking dividend stocks that offer high yields but low growth prospects or have unsustainable payout ratios — especially if you don’t want to take unnecessary risks. Instead, you should look for dividend stocks that have solid fundamentals, stable cash flows, and a good track record of increasing their dividends over time. To help you find such stocks, I’ve picked two of the most reliable Canadian dividend stocks that could turn your savings into a steady income stream.
Manulife Financial stock
Manulife Financial (TSX:MFC) is a global financial services company with a market cap of $60.3 billion headquartered in Toronto. Its stock currently trades at $33.60 per share after rallying by nearly 15% so far in 2024. At the current market price, MFC offers an attractive 4.8% annualized dividend yield and distributes these dividend payouts every quarter.
Even as macroeconomic challenges have affected the demand for loans, Manulife’s business growth has remained largely unaffected, thanks to its strong presence in various financial services, including insurance and wealth management. In the last 12 months ended in March 2024, the company’s adjusted earnings have grown positively by 15.7% YoY (year over year) to $3.61 per share. Its solid financial growth trends are one of the reasons why this MFC stock has yielded 65.4% positive returns in the last decade, even after excluding income from its dividends.
As Manulife continues to focus on optimizing its portfolio by making new acquisitions and partnerships across the globe, its financial growth trends are likely to remain stable over the long run.
TD Bank stock
My second dividend stock pick to turn savings into a steady income stream is Toronto-Dominion Bank (TSX:TD). With a market cap of $136.3 billion, TD is currently the second-largest bank in Canada, as its stock trades at $76.90 per share after sliding by around 10% year to date. The recent declines in TD’s share prices, however, have raised its annualized dividend yield, which currently stands at 5.3%.
In the 12 months ended in January 2024, TD’s total revenue rose 9.3% YoY to $52.5 billion. Besides strength in its wealth management and insurance segments, higher revenue from its wholesale banking division boosted the bank’s topline. However, a recent increase in its provisions for credit losses due to a tough macroeconomic environment has driven its adjusted earnings down by 8.9% YoY during the same period.
Nonetheless, the financial growth trends in TD’s Canadian and U.S. banking operations are likely to significantly improve in the coming years as the Bank of Canada and the Federal Reserve gear to slash interest rates. Given that, I expect TD stock to witness a sharp recovery.
