Investing in dividend-paying stocks with a track record of reliable payouts and strong growth potential can help build a solid passive-income portfolio with a higher potential to create wealth in the long run. These dividend stars not only generate regular cash flow but also have the potential to deliver impressive capital gains over time. Against this background, here are two Canadian stocks with fundamentally strong businesses, a growing earning base, robust dividend payment history, and solid growth potential to buy now.
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goeasy
Investors seeking solid dividend income and strong returns could now consider goeasy (TSX: GSY) stock. goeasy is Canada’s leading financial services company, offering leasing and lending services targeting subprime borrowers. Thanks to its impressive financials, goeasy has rewarded its shareholders with increased dividend payments. Moreover, goeasy stock has outperformed the broader index and delivered above-average returns.
It’s worth noting that shares of this financial services company have gained over 179% in the last five years, delivering a compound annual growth rate (CAGR) of about 22.8%. This performance was fueled by its double-digit sales and earnings growth rate.
Thanks to its growing earnings and free cash flows, goeasy has rewarded its shareholders with regular dividend payments for the past 20 consecutive years. Further, goeasy has raised its dividend for 10 consecutive years and is part of the S&P/TSX Canadian Dividend Aristocrats Index.
Looking ahead, its leadership in the subprime lending market, omnichannel offerings, and solid underwriting capabilities will enable it to deliver solid growth. Further, goeasy’s wide product range, diversified sources of funding, and geographic expansion will support its financials and dividend payouts.
Hydro One
Hydro One (TSX: H) is another dividend star to add to your portfolio for steady dividend income and the potential for capital growth. It is engaged in electric power transmission and local distribution, where 99% of operations are rate-regulated. Unlike many other utilities, Hydro One has no exposure to power generation and remains unaffected by commodity price volatility. This adds stability to its business operations and enables the company to deliver steady earnings and cash flows regardless of market conditions.
Hydro One is a reliable dividend-growth stock thanks to its resilient business model, strong cash flows, and solid earnings growth. It has consistently increased its dividends for the past seven years and offers a decent yield of 2.8%.
Besides dividend growth, the stock has delivered significant capital gains, achieving a CAGR of 13.7% over the past five years, translating into a return of over 90%.
Hydro One is likely to steadily increase its dividend in the coming years, driven by its low-risk earnings, strong balance sheet, expanding rate base, and strong cash flows. It projects its rate base to grow at a CAGR of 6% through 2027, which is likely to drive earnings by 5-7% annually and dividends by 6% per year.
Further, Hydro One looks well-positioned to benefit from the rising electricity demand driven by the growing population, energy transition opportunities, and new manufacturing capabilities. Large-scale projects like data centres, electrification of commercial buildings, adoption of electric vehicles, and related supply chains will further support its growth.
