TFSA (Tax-Free Savings Account) investors looking for a bit of a long-term boost should look to some of the stocks out there offering both capital gains and dividend appreciation over time. Undoubtedly, it’s nice to have a large upfront dividend yield. But the fact remains that high yields are a bigger commitment which can take away from other areas, such as forward-looking growth projects that could help jolt the rate of earnings and sales growth. Sure, returning capital back into the pockets of shareholders is important. But there must be a balance met if a stock is to have a good mix of appreciation and dividends, which both go into calculating the total return.
At the end of the day, I believe that new TFSA investors should insist on low-cost dividend growers that have a track record to show for it. Dividend growth is an underrated trait that I believe could be the difference between a modest, traditional retirement and one that’s quite comfortable and perhaps even a few years (or decades) earlier than the traditional retirement age of around 65. Either way, let’s jump right into the names that I think could help young investors kickstart their journey to a nice retirement.
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Couche-Tard: A great stock to buy for gains and dividend growth
First up, we have shares of Alimentation Couche-Tard (TSX:ATD), a convenience store operator that also has what I view as one of the least appreciated dividends in all of the retail space. The stock is fresh off a huge upward move after having announced it’s no longer going to be buying up 7 & i Holdings, the parent company of 7-Eleven.
Indeed, shares of 7 & i tanked while ATD stock gained close to 13% in a week, a massive upside move that I recently predicted had the mega-merger fallen through in the summer. While it is too late to chase the quick gain, I do think that there’s plenty of long-term value to be had in the name, especially as it looks for what to do with its big pile of cash and credit. For now, the firm is committed to returning capital to shareholders by resuming the share buyback program. Ultimately, the market reacted positively to the news.
And while time will tell which types of acquisitions the firm will go for next, I do think that the stock remains deeply undervalued, even after its sudden double-digit percentage surge last week. At 20.6 times trailing price-to-earnings (P/E), you’re not paying a high price for one of the best defensive growth stocks in the country. Of course, recent quarters have been tough, but with plenty of capital to pursue M&A and buybacks, I do think the stock has a good shot of hitting prior highs within the medium term.
Bottom line
As Couche-Tard looks to move on from a year-long pursuit that went nowhere, I do think investors will grow more confident as the firm looks for bite-sized deals as it gets back to what it does best: boosting synergies via M&A. At $76 and change, I think the newfound momentum is worth getting behind while the yield is still slightly above 1%.
