Investing in blue-chip dividend stocks with a growing payout is among the best strategies for building long-term wealth. Typically, dividend-growth stocks generate stable cash flows across market cycles, allowing them to raise payouts over time. Further, a sustainable payout allows companies to reinvest in growth, target accretive acquisitions, and strengthen the balance sheet, all of which should drive future cash flows higher.
Dividend stocks should enhance shareholder returns via capital gains in addition to a consistent stream of passive income. Keeping this in mind, here are the smartest TSX dividend stocks to buy with $1,000 right now.
Bank of Montreal stock
Bank of Montreal (TSX:BMO) has trailed the broader markets in the last two years due to higher interest rates, which have led to a tepid lending environment. Down 16% from all-time highs, BMO stock currently offers a tasty dividend yield of 4.7%, given its annual payout of $6.04 per share.
In the fiscal first quarter (Q1) of 2024 (ended in January), BMO reported a net income of $1.9 billion, or $2.56 per share, against a challenging macro backdrop, showcasing the strength of its diversified business lines. The environment has constrained revenue growth in market-sensitive businesses, which was offset by strong performance in the personal and commercial loan segments and acquisitions.
Similar to other companies, BMO is focused on optimizing its businesses and balance sheet while controlling costs and growing customer relationships to drive sustainable growth. BMO announced a few expense management commitments last year, which include US$800 million run rate cost synergies once the Bank of West acquisition is closed. Moreover, it is on track to deliver $400 million of expense savings by the end of 2024.
Analysts expect BMO to increase its adjusted earnings from $11.22 per share in fiscal 2024 to $12.3 per share in fiscal 2025. Priced at 12.1 times forward earnings, BMO stock is cheap and is an attractive buy especially if interest rates move lower.
Brookfield Asset Management stock
Another dividend stock part of the financial sector is Brookfield Asset Management (TSX:BAM), which offers you a forward yield of 3.8%. BAM is among the world’s largest alternative asset managers, with more than $1 trillion in assets under management (AUM).
BAM generates the majority of its earnings from fees, which depend on its AUM. Thus, an expansion of the AUM should translate to higher earnings, cash flows, and dividends.
According to Brookfield Asset Management, market sentiment has improved over the past year, resulting in higher liquidity and fund inflows. Investors’ higher risk appetites and a stronger-than-expected global economy should help Brookfield going forward. In fact, the asset manager raised US$20 billion in Q1 and has around US$100 billion in dry powder that can be used to invest in growth projects.
BAM emphasized that it enjoys a leadership position in verticals such as infrastructure, clean energy, and private credit, all of which are in high demand by institutional investors. These asset classes are at the epicentre of three megatrends, decarbonization, deglobalization, and digitalization, that are reshaping the global economy.
According to Brookfield, these sectors will attract more than US$200 trillion of capital in the next three decades, creating significant growth opportunities as the company builds products and services to address market needs.
