Most investors tend to think they have to choose between growth and income. You either buy high-growth TSX stocks that don’t pay much, or you buy dividend stocks that generate income but don’t grow very fast.
However, some of the best long-term investments are actually the businesses that can do both.
Most high-quality stocks you buy will automatically pay dividends anyway because they’re well-established and have demonstrated the ability to generate profit consistently. Not all of them, especially not tech stocks, but most.
Stocks that can grow earnings consistently while also paying a meaningful dividend are ideal for a lot of reasons. You begin to earn some returns right away through income today, which can be reinvested or used however you want, and you also get long-term capital appreciation as the business continues to expand.
That kind of balance is appealing over the long haul, especially as you’re holding through different environments and uncertain markets. If markets cool off, the dividend helps cushion returns. And when the economy improves and markets rally, you still get upside over time.
That’s why two of the best dividend growth stocks you can buy on the TSX are goeasy (TSX: GSY) and Canadian Tire (TSX: CTC.A).
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A top dividend growth stock trading dirt cheap
There’s no question that goeasy is one of the best dividend growth stocks on the TSX in general. However, with the stock trading well off its highs and its dividend yield currently sitting at roughly 4.5%, it might be one of the best stocks you can buy right now.
For years now, it has been one of the fastest-growing specialty finance companies in Canada.
What makes goeasy so compelling, though, is its consistency. Over the years, it has grown its loan book, revenue, and earnings at an impressive pace, even through economic slowdowns.
At the same time, because goeasy has consistently managed its risk and charge-offs well, it has continued to generate a tonne of cash flow. That’s allowed the company to rapidly increase its dividend, which is now up more than 120% over the last five years.
And despite that growth, goeasy’s dividend remains well covered, with a payout ratio that’s currently below 40%.
Therefore, given the growth potential of its business and the pace at which it has been increasing its dividend, the fact that goeasy is now offering a yield north of 4% makes it a no-brainer for investors looking for a stock that offers the best of both worlds.
An impressive retail stock to buy and hold for the long haul
In addition to goeasy, Canadian Tire is another impressive Canadian stock that offers an attractive mix of dividends and growth.
In fact, Canadian Tire is a perfect example of what a well-established, consistently profitable business looks like.
For years, it has grown strategically, both organically and through acquisitions, building out its footprint by adding brands while making sure the foundation of the business, like its loyalty program, e-commerce platform, and distribution network, is top-notch and supports that growth.
This disciplined approach has allowed Canadian Tire not only to expand its operations but also to continue paying and increasing a meaningful dividend over time.
For example, over the last five years alone, Canadian Tire has increased its dividend by roughly 53%, which is significant for a retailer with a market cap of about $9.5 billion. And while its growth isn’t as impressive as goeasy’s, its consistency and dependability are among the best on the TSX.
Furthermore, unsurprisingly, Canadian Tire’s dividend is also well supported, with a payout ratio sitting just over 50%, giving the company plenty of flexibility to keep investing in the business while continuing to reward shareholders.
So, if you’re looking for a top TSX stock to buy for both growth and dividends, Canadian Tire is undoubtedly a top pick.
