If you’re looking to build a growing stream of passive income, reinvesting dividends is one of the simplest ways to speed up how quickly that income increases over time.
Rather than spending the cash your stocks pay you, reinvesting it allows you to buy additional shares that can then generate dividends of their own, which is especially useful in a TFSA, where that income can grow tax-free.
Because even if a company doesn’t increase its dividend, consistently using your income to buy and own more shares can still increase the income you receive. And when the business raises its payout too, those increases apply to all the shares you’ve accumulated.
That’s why dividend investing is so popular among Canadians. The longer the timeline you give yourself and the more dividends you reinvest, the more your money can compound over time.
Furthermore, you don’t even necessarily have to reinvest in the same stock, either. Dividend reinvestment plans, or DRIPs, can automate that process, but you can also collect the cash and put it toward whichever investments offer the best opportunities.
So, with that in mind, if you’re looking to build a portfolio of high-quality Canadian dividend payers, here are two of the top dividend-growth stocks on the TSX and a higher-yield pick that could give you even more income to reinvest.
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Two dividend stocks to buy for income growth
If you’re looking for high-quality dividend-growth stocks to buy and hold for years, Manulife (TSX: MFC), which currently offers a yield of roughly 3.1%, is a popular choice for Canadians, and for good reason.
Manulife is a massive insurance business with operations across Canada, the United States and Asia. Additionally, it complements those insurance services with its wealth and asset management business, which earns fees from managing investments and retirement savings.
That gives it several ways to grow and scale, particularly as demand for insurance and investment products continues expanding in Asia.
And as those businesses generate more earnings, Manulife has room to keep increasing the cash it returns to shareholders. In fact, earlier this year, it raised its quarterly dividend by 10.2%, and its dividend has now more than doubled over the last decade.
That’s why Manulife is so appealing for this strategy. Reinvesting your dividends allows you to accumulate more shares, while growth in the payment itself can help your income compound even faster over the long haul.
Meanwhile, Capital Power (TSX: CPX) is another high-quality dividend-growth stock offering an even higher current yield of roughly 4.4%, alongside significant long-term growth potential as electricity demand grows.
The company supplies essential electricity across Canada and the United States, with contracts and hedges that make much of its cash flow highly predictable.
However, it also has a tonne of growth potential as demand increases, particularly because building new generation takes years, making the capacity it already owns increasingly valuable.
Plus, Capital Power has increased its dividend for 13 consecutive years. So, with its attractive yield and long-term growth potential, it’s easily one of the top stocks to keep buying as you reinvest your dividends.
A higher-yield stock to boost your portfolio’s income
While Manulife and Capital Power are two of the top dividend-growth stocks on the TSX, if you’re looking to boost the income your portfolio generates and have more cash to reinvest, Alaris Equity Partners (TSX: AD.UN) is worth considering.
Alaris provides capital to established private businesses, primarily through preferred equity investments that pay it regular distributions. It also owns common equity interests, allowing it to benefit as those businesses grow in value.
And because it consistently collects income from those investments, Alaris can pay a generous distribution while retaining cash to keep growing its business.
And although its income depends on those private businesses continuing to perform, Alaris reported a first-half payout ratio of just 58%. Following its latest increase, management expects the ratio to remain within its 65% to 70% target. In fact, right now it yields roughly 6.7%.
A high yield doesn’t automatically make a stock a buy, but when you can find a reliable high-yield stock that offers long-term growth potential as well, it’s certainly worth considering for your portfolio, especially if you’re planning to reinvest all those dividends.
