If you’re a newer investor going for some of the market’s higher yielders, you can expect to compromise on the growth front, especially when it comes to the names that have shed most of their value from peak to trough. Indeed, it’s these so-called “accidentally high yielders” (yields tend to rise as share prices fall, assuming no dividend cuts) that may very well have serious growth issues. And while they may not be necessarily value traps (or dividend traps), such challenged names may very well fall short on capital gains. Indeed, it takes both appreciation and dividends to make up total returns.
If you boost your yield, you can expect a stock under question to have less appreciation potential. But this begs the question: are there any higher-yielding dividend stocks out there that still have what it takes to gain as much (or even a bit more) than the broader stock market?
Of course, if you spot an undervalued stock that can execute on a growth plan, passive income hunters can have their cake and eat it, too. Personally, I’m a fan of the dividend payers that have above-average yields by design – with a good amount of longer-term momentum – and a history of growing sales, earnings, and, of course, the dividend.
In this piece, we’ll check in on two such dividend stocks with respectable yields and the potential to grow at an above-average rate over time.
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Enbridge
Enbridge (TSX:ENB) is a prime example of a firm whose stock can deliver on both fronts (gains and dividends). The large-cap pipeline company has been a red-hot performer in the past few years, gaining around 50% in the past five years and 30% in the past year alone.
While the name may not be putting the TSX Index, which gained 71% in five years, to shame, I do think that the real value in the name is the one-two combo of appreciation, upfront yield (5.9% yield at writing), and dividend growth. Indeed, the pipeline firm seems to have struck the perfect balance between returning cash to shareholders and funding growth projects.
As the midstream energy scene continues its comeback, I’d not dare bet against ENB shares. Perhaps the year-to-date consolidation is more of a buying opportunity than a sign that it’s time to take profits. At 23.4 times trailing price-to-earnings (P/E), you’re not paying too high a price for a proven performer with an applaud-worthy dividend growth track record.
TD Bank
If you threw in the towel on TD Bank (TSX:TD) stock last year, you’re probably shocked how quickly the name came roaring back this year. And though it’s tough to get back into a stock after missing a substantial run in shares, I do think that the risk/reward in TD Bank stock remains as good as ever. The stock’s up close to 26% year to date. And with the $100 level in sight, I’m inclined to prefer TD over its five rivals in the Big Six right now.
The 4.4% dividend yield has compressed in recent quarters, but it is still worth going for. Add the newfound momentum and dirt-cheap 9.9 times trailing P/E multiple into the equation, and TD looks as timely as ever. I think it’s a great buy as the company’s new CEO, Ray Chun, shoots to boost the bank’s home-ice advantage after being partially shut out (pardon the hockey puns!) of future growth in the U.S.
