The right dividend stocks serve as anchors in a well-balanced portfolio. They provide stability, consistency, and regular cash payments to supplement income. Clearly, there are many reasons to love dividend stocks.
Let’s take a closer look at the benefits of dividend stocks and the characteristics that investors love and should look for.
Reliable and consistent income
The whole purpose of dividend stocks is to provide income. Whether this income is a supplement to employment income or part of an investor’s retirement income, it can play a pivotal role in increasing one’s standard of living. What’s not to love?
Fortis Inc. (TSX: FTS) is the epitome of a reliable and consistent dividend stock. In fact, Fortis stock’s dividend has increased each year for 52 consecutive years. In the last three years, Fortis’ annual dividend per share increased at a compound annual growth rate (CAGR) of 6.5% to $3.53. Looking ahead,the stock is forecasting a 4% to 6% annual dividend growth rate until the year 2030.
Growing income
Another characteristic to look for is a growing dividend. We’ve already seen that not only is Fortis an extremely reliable dividend payer, but it’s also one that has significantly grown its dividend.
Another dividend stock that has been successful at growing its dividend is Enbridge Inc. (TSX: ENB). Enbridge is another stock with steady, secure, and growing cash flows. They are, after all, backed by long-term contracts. This essential energy infrastructure business has increased its dividend for 31 consecutive years. In fact, it has increased by more than 1,400% during this time period.
Higher yields
There are plenty of high-yield dividend stocks that look very appealing at first glance. I mean, we all want the highest yields possible, of course. But remember, oftentimes the higher the yield, the greater risk that you are taking with your money.
This is where the work comes in. Researching these stocks can give an indication of the true risk profile of any given investment. Things to look into include the stability and predictability of cash flows, the health of the balance sheet, and future opportunities and risks.
Technically, even if a dividend stock scores well on all of these checks, you are still taking greater risk than you would be taking if you bought a guaranteed investment certificate or a bond. However, this extra yield makes the right dividend stocks an ideal addition to any investment portfolio. On top of this, you also get the benefit of the preferential tax treatment that comes with dividends.
The bottom line
The reasons for Canadian investors to love dividend stocks are plenty – including regular income, which can be reinvested to achieve compounding growth and returns. But the right ones also provide greater stability and predictability to investment portfolios. These stocks are more mature and well-established, making their cash flows all that more reliable.
Finally, for Canadian investors who are interested in increasing their dividend income, a good place to start would be to consider the stocks mentioned in this article, Fortis and Enbridge.