With decades still separating me from retirement, I have an important advantage: time. Rather than simply chasing the highest dividend yields today, I’m focused on building an income stream that can grow substantially over the years.
That means I’m willing to buy dividend stocks when temporary business setbacks or market weakness create attractive opportunities. My goal is straightforward: own companies with durable competitive advantages, growing cash flows, and the financial strength to increase their dividends year after year.
A starting yield of around 4% would certainly be attractive, particularly when it’s roughly double the broader Canadian market yield. However, I don’t necessarily need that much income today. A lower-yielding company that can compound earnings and dividends at a high rate could ultimately provide a much larger retirement income stream.
Here are two stocks I’m buying for that reason.
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TMX Group: A Canadian financial infrastructure powerhouse
TMX Group (TSX: X) is the financial backbone of Canada’s capital markets, operating the Toronto Stock Exchange and other major platforms where securities and contracts are listed, traded, and cleared.
What particularly attracts me is its dominant position. TMX Group has virtually no direct domestic competition, giving it a powerful competitive moat and an important role in the Canadian economy.
It is an asset-light business that can generate attractive margins, while recurring revenue from market data, analytics, and listings adds stability.
The company’s recent results demonstrate why I’m optimistic. In the first half of the year, revenue increased 16% to $975.7 million, operating income climbed 25% to $465.7 million, and adjusted earnings per share jumped 27% to $1.28.
TMX Group has increased its dividend at roughly a 10% annualized rate over the past decade and recently raised the payout by 8.3%. At $54.55 per share, the stock yields about 1.9%, with a sustainable payout ratio of roughly 40%.
That yield isn’t huge today. But if earnings and dividends continue compounding, the income generated on my original investment could become considerably more meaningful in retirement.
Brookfield: Betting on long-term compounding
Brookfield (TSX: BN) is another important piece of my personal pension strategy.
Brookfield owns and operates a collection of high-quality real assets and businesses while managing alternative investments around the world. Its scale, global reach, and operational expertise provide significant advantages.
With dividends reinvested, Brookfield has generated annualized returns of nearly 15% over the past decade. Its dividend has also grown at roughly 10% annually over the same period, while the company recently increased its payout by 16.7%, indicating management’s confidence in the business.
At $57.45 per share, the stock yields only about 0.7%. Yet Brookfield targets long-term shareholder returns of more than 15% annually, making it a compelling growth-oriented complement to higher-yielding dividend stocks.
The bottom line: Building income for the future
TMX Group and Brookfield illustrate why I’m not simply chasing dividend yield. I want growing income, supported by growing businesses.
By reinvesting dividends today and owning companies capable of increasing their payouts for years, I can potentially create a personal pension that becomes larger and more dependable over time.
That’s the strategy: buy quality, reinvest the income, let compounding do the heavy lifting, and give my dividend stocks decades to work.
