Investors looking to build lasting wealth often choose to consider a portfolio mix of growth and income for good reason. Around one-third of all returns in the market come in the form of dividends. Accordingly, avoiding dividend stocks can be costly, particularly for those with a long-term investing time horizon.
That said, the reality is that plenty of stocks pay out dividends, each with varying yields and dividend growth trajectories. Thus, picking the right dividend-paying stocks to put in a portfolio can be a trickier job than one may initially think.
The following dividend stocks are among my top picks in this market, as they check off many of the boxes I think long-term investors ought to look at. Here’s why these two Canada-based companies may be worth a look for your portfolio right now.
Fortis
Fortis (TSX:FTS) is among the top utility stocks in Canada, operating 10 utility transmission and distribution assets domestically and in the United States. Currently serving 3.4 million customers, the company has built a rock-solid business in the core markets it operates in, with a business model focused on regulated long-term utility contracts in its core regions.
Fortis has grown over time by raising its regulated rates according to its capital expenditure plans, returning excess cash to shareholders over time. This business model has been very lucrative, and the company should be in a position to push for higher rates in the future (as inflationary pressures remain), allowing for more room to raise dividends over time.
That’s increasingly important for Fortis as a Dividend King (a company that’s raised its dividend for more than 50 years straight), as investors rely on Fortis for its reliable dividend growth over time.
Currently, Fortis yields around 3.9% at the time of writing, which certainly isn’t bad compared to where Canadian bond yields are. With a long-term dividend-growth rate of around 6%, investors can rest easy at night knowing their yield on investment should rise over time. And that’s saying nothing of the underlying stock’s performance, which has been robust in recent years (as seen in the chart above).
With utilities coming back into focus as an integral piece of the power generation picture for data centres and other areas of high energy demand in the economy, Fortis remains a solid pick for long-term investors looking for steady passive income. That’s my take, anyway.
Bank of Montreal
Bank of Montreal (TSX:BMO) is among the Canadian “Big Five” banks, which has provided extremely steady performance in recent years. As the chart below shows, BMO stock has held up relatively well, and while it hasn’t seen the kind of growth other names in the tech sector have seen, it’s still up considerably over the past five years.
Like Fortis, BMO has provided steady dividend growth over time, only seeing dividend stabilization during periods where regulators did not allow for increases due to various economic concerns. The stock’s current yield of 5.1% is much more attractive than Fortis, though one could argue the company’s dividend-growth profile has been similar, if not better, over long periods of time.
The bank’s adjusted earnings surged from $11.73 this past year to $12.49 in its current year, reflecting strong operating efficiency and core fundamentals. That said, this bank stock still trades at around 11 times earnings. That’s ultra-cheap compared to most sectors. However, in the banking world, BMO is in the middle of the pack.
In my view, the lender’s annual 6% earnings growth (expected by analysts) should flow through to additional dividend hikes over time. Barring another financial crisis, this is a stock I think can be bought and held for the long term, and I don’t see any systemic risk, at least right now, with the company’s operating model.
If recessionary pressures do pick up and we see a large downtick in this stock, it’s one I’d buy on the cheap. That’s a strategy that’s paid out handsomely in the past, and I don’t see why now would be any different.
