There’s no doubt that some of the best investments to buy and hold for the long haul are dividend growth stocks.
Companies that not only pay you a steady income, but also raise those payouts year after year, both power your portfolio’s growth in the good years and help your returns grow even when the market is flat or volatile.
The problem, of course, is that the best dividend-growth stocks on the TSX almost never look cheap. The market knows how reliable these companies are, which means they usually trade at a premium. That is why market pullbacks or short-term dips are some of the best opportunities you will ever get to buy high-quality dividend-growth stocks at a discount.
So, with that in mind, here are two of the top dividend growth stocks to buy in Canada, one of which is already trading ultra-cheaply today.
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The top dividend growth stock to buy on a dip
If there’s one ultra-safe stock I’d recommend every investor consider buying on a dip, it’s Fortis (TSX:FTS), the $37 billion utility stock.
The reason Fortis is the top dividend growth stock to buy on a dip is not necessarily because it’s the best stock in Canada, although it’s certainly up there. The main reason is that it almost never trades cheaply, and it’s one of the most defensive stocks on the TSX. So, if it is trading at a discount, it’s worth considering.
The reason Fortis is never cheap is exactly that it’s one of the most defensive stocks on the TSX. Its operations are essential and future cash flow generation is predictable, and that makes it an ultra-reliable dividend growth stock. Furthermore, it’s one of the least volatile stocks on the TSX, with a beta of 0.4.
So, it’s no surprise that in the current market environment, with heightened uncertainty persisting and interest rates on the decline, Fortis is trading at a premium.
Right now, its forward price-to-earnings (P/E) ratio is 21.4 times, which is above its five-year average of 19 times. Furthermore, its current dividend yield of 3.5% is also well below its five-year average yield of 4%.
So, although Fortis is easily one of the most reliable stocks on the TSX, with a dividend growth streak that’s lasted half a century, it’s a stock I’d wait to buy on a dip.
A top stock to buy now
Fortis is a stock you’ll certainly want on your watchlist, but if you’ve got cash you’re looking to put to work today, one of the best dividend growth stocks to buy now is Granite REIT (TSX:GRT.UN).
Granite is an industrial REIT with a diversified portfolio of assets that generates reliable cash flow every month. And with industrial real estate seeing a surge in demand in recent years, Granite’s operations haven’t just been expanding; its dividend has been rising rapidly as well.
In fact, in the last five years Granite’s dividend has been steadily rising, while its payout ratio has been falling, showing why it’s one of the most reliable dividend growth stocks you can buy now. Over the last 12 months, for example, Granite has paid out just 65% of its adjusted funds from operations (AFFO).
And the best part for investors is that Granite trades at a compelling valuation today. Not only is it trading at a forward price-to-AFFO ratio of 14.1 times, but it also offers a yield of more than 4.4%.
Furthermore, all four analysts covering Granite rate the stock a buy, and its average analyst target price is $88.75, a roughly 16% premium to its current trading price.
So, if you’re looking for high-quality growth stocks to buy on the dip, Granite is one of the best to buy right now.
