Are you looking for some smart dividend stocks that you can add to your passive income portfolio? The Canadian stock market has some lucrative dividend options, from real estate to energy to finance and telecom. You might have a few of these stocks already. However, a smart choice would be the one that helps you earn a higher dividend in the long term.
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The smartest dividend stocks to buy right now
When considering dividend stocks, you should look at them from two angles:
- Your financial goal: Do you want an immediate dividend payout or it to compound for 5 to 10 years?
- Company’s cash flow: Does the company have stable cash flows to sustain the dividends for the long term?
Depending on your financial goals, you could consider investing in any of the two dividend stocks mentioned below.
goeasy stock
Non-prime lender goeasy (TSX:GSY) is often regarded as a growth stock because of its stock price appreciation and high credit risk. However, the company’s fundamentals resemble that of a dividend stock. It has stable cash flows and a strong balance sheet, with $695.8 million in retained earnings. This is the accumulated profit over the years attributable to shareholders after paying dividends and reinvesting the money to give out more loans.
Driving these earnings are a 33–34% yield on goeasy’s loan portfolio, which is also growing. The company is expanding its loan customers to include retail and auto loans. Moreover, the lender has been expanding its geographic presence. Such high yields come with credit risk, but goeasy has contained its charge-off rate below 10%.
The growth in the loan portfolio is driving the company’s stock price. It currently trades at a price-to-book value of 2.77 times. The company shares a portion of the interest income as dividends. As the stock price grows, its annual dividend yield is only 2.6%. However, the company has been growing dividends at an average annual rate of 20%.
If the lender retains this momentum by growing its loan portfolio, a little over $500 investment could buy you three shares. These shares could give you a $14 annual dividend at the current dividend per share. But this amount could grow to $35 at a 20% average annual growth rate in five years. The stock price will also grow during this period and could double your money to $1,000.
CT REIT
CT REIT(TSX:CRT.UN) is another interesting dividend stock you can consider if you are looking for long-term returns. The REIT has a distribution yield of 5.8% that it pays in 12 monthly installments. It is among the few REITs that grow its distribution annually by over 3%, helping you beat inflation. A $500 investment now can buy you 32 units of CT REIT and pay you $30.49 in annual dividends in 2025.
While this may look like a small amount, if you opt for CT REIT’s dividend reinvestment plan (DRIP), it will buy more units from the dividend money and compound your dividends. In 10 years, the unit count could compound to 56.5 units and the dividend amount on these units could increase to $70. It more than doubled your passive income without any extra investment. You can keep investing $500 per month in this stock and accumulate more units to build a sizeable passive income.
CT REIT’s cash flows are also resilient as the company has little mortgage. Most of its debt is interest only. As it is the real estate arm of Canadian Tire, it gets a priority to buy, develop, and enhance all Canadian Tire stores. There is no concern around occupancy or default on rent as the parent company is channelling its rental expenses through the REIT to earn dividends.
The above two quality dividend stocks can be used in various ways to maximize your returns.
