Every Canadian should put some money in solid dividend stocks for favourably taxed income. It makes good sense to take advantage of dividend stocks to earn eligible Canadian dividends that are taxed at lower rates than interest income and your job’s income.
Once you make it a habit to save a portion of your paycheque every month to build a personalized dividend powerhouse, in time, the portfolio will be able to fuel itself.
Visualize, for example, a $120,000 dividend portfolio earning a 5% yield, which would make $6,000 in dividends annually to help fuel your portfolio. If you’re saving $500 a month from your paycheque to invest in dividend stocks, having this $120,000 portfolio and making $6,000 in dividend income to be reinvested is essentially doubling the fuel and accelerating your portfolio growth!
What’s more to like is that there are a bunch of dividend stocks that tend to increase their dividends over time. So, if you wanted to, you could stop adding new money into the portfolio and still make more dividend income each year.
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Dividend stock yielding 6%
Power Corp. (TSX:POW) seems to be a decent dividend stock. First, the life and health insurance company’s 6% dividend yield is eye-catching. Second, it is a Canadian Dividend Aristocrat with about nine consecutive years of dividend growth, which is promising for income-focused investors.
POW Dividend data by YCharts
To be sure, POW’s 10-year dividend growth rate is approximately 6%, while its last dividend hike in March was about 7%. Its trailing-12-month payout ratio is about 52% of earnings.
In other words, it offers a nice dividend that seems sustainable. And the company appears to be committed and able to increase its dividend at a good pace.
At $37.77 per share at writing, Power Corp. trades at a reasonable price-to-earnings ratio of about 8.4. Furthermore, analysts believe the stock trades at a discount of roughly 14%, which implies it could appreciate about 17% over the next 12 months. Combined with the dividend, if things go well, it’s possible for investors to pocket about 20% from the stock over the next 6 to 12 months.
Of course, given the stock’s generous dividend and track record of paying increasing dividends, investors could also choose to sit on the shares for long-term passive income.
Want faster dividend growth?
For faster dividend growth potential, Canadians can investigate lower-yielding dividend stocks such as Alimentation Couche-Tard (TSX:ATD). The global convenience store consolidator has had tremendous success in its mergers and acquisitions (M&A) strategy. As a result, the dividend stock has been able to increase its dividend at a compound annual growth rate (CAGR) of approximately 24% over the past 15 years. Its last dividend hike was still on par at 25% last November.
Currently, the company consists of a network of about 16,740 locations across 31 countries. Management still sees a fragmented industry that offers acquisition opportunities. The convenience and gas retailer has a strong history of making lots of cash flow and in allocating its capital with discipline. It currently forecasts EBITDA, a cash flow proxy, growing at a CAGR of about 11.7% through 2028.
At $82.33 per share at writing, ATD offers a dividend yield of under 0.9%, which is not much, but it has good potential of growing its dividend at an above-average pace. At this price, analysts believe the stock is fairly valued.
So there you have it. Canadians can seek high-yield blue chip dividend stocks for current income to help fuel their portfolios now. To fuel faster growth down the road, they can also populate their diversified portfolios with some lower-yield but higher-growth dividend stocks.
