Investing in fundamentally strong dividend stocks is a proven strategy to build long-term wealth. This strategy allows you to generate a passive income stream at a low cost and benefit from long-term capital gains over time. However, it’s essential to identify a portfolio of dividend stocks that have stable and growing cash flows, a low payout ratio, and reasonable debt levels to ensure these payouts are maintained across market cycles. Here are three top dividend stocks to buy now and hold forever.
Brookfield Infrastructure Partners stock
Valued at $18.2 billion by market cap, Brookfield Infrastructure Partners (TSX:BIP.UN) offers shareholders a tasty dividend yield of 5.6%. The Canada-based heavyweight owns and operates a diversified portfolio of infrastructure businesses across verticals such as utilities, transportation, midstream, and data centres.
Moreover, the company generates over 90% of its earnings from long-term, fee-based contracts or rate-regulated structures, resulting in stable cash flow generation. Around 70% of its cash flows are sheltered from volume or price exposure, while over 80% is tied to inflation-linked contracts.
BIP aims to distribute 60% to 70% of its cash flows as dividends, which provides it with enough flexibility to target acquisitions or lower balance sheet debt.
Further, BIP expects to grow its funds from operations per share by more than 10%, from US$2.95 in 2023 to US$3.25 in 2024. Priced at 8.9 times forward funds from operations (FFO), BIP stock is quite cheap and trades at a discount of 31% to consensus price target estimates.
Royal Bank of Canada stock
Royal Bank of Canada (TSX:RY) is among the largest banks in Canada and offers shareholders a tasty yield of 3.8%. While RBC is part of a cyclical sector, it has raised its dividends by more than 7% annually in the last two decades, which is exceptional.
Despite a sluggish lending environment, RBC reported adjusted earnings per share (EPS) of $4.2 billion, or $2.92 per share, an increase of 9% year over year in the fiscal second quarter (Q2) of 2024 (ended in April). RBC attributed its strong performance to record earnings in the capital markets business and growth in wealth management, insurance, and personal & commercial banking.
Analysts expect RBC stock to end fiscal 2024 with earnings of $11.5 per share, translating to a forward earnings multiple of 13 times, which is not too high.
Canadian National Railway stock
The final blue-chip dividend stock on my list is Canadian National Railway (TSX:CNR), which offers you a yield of less than 2%. However, in the last 20 years, CNR stock has returned an emphatic 1,630% to shareholders after adjusting for dividends.
The railroad giant expects to deliver EPS growth of 10% in 2024 while allocating $3.5 billion toward its capital program, which should drive future cash flows higher. It also expects the return on invested capital to be between 15% and 17%.
Moreover, Canadian National Railway forecasts EPS to expand between 19% and 15% through 2026 due to growing volumes, improving operational efficiencies and higher pricing.
In the last 25 years, CNR has raised dividends by 16% annually, enhancing the effective yield in this period.
