TFSA Investors: 3 Top Dividend-Growth Stocks to Hold for Decades

Toronto-Dominion Bank (TSX:TD)(NYSE:TD) and these two other dividend stocks can accumulate a lot of cash for your portfolio.

| More on:
growing dividends

Dividend stocks are a great way to pad your TFSA balance and earn income tax-free. However, many dividend payments are stale and don’t grow over time, meaning your payouts are effectively lower in future years once you factor in inflation. That’s where the three dividend stocks below are very valuable, as their payouts have grown over the years and will likely continue to do so for the foreseeable future.

TD Bank (TSX:TD)(NYSE:TD) is a solid stock pick for many reasons, including its dividend. Although it hasn’t had the best year with its stock price tumbling nearly 10% in the past 12 months, its dividend remains a very attractive option for investors looking to add a strong payout.

At just under 4%, it has a fairly high dividend yield for a stock that should also provide a great opportunity to earn some strong capital appreciation along the way. TD has provided investors with a strong, growing dividend over the years as well. Currently, shareholders receive $0.67 every quarter, and that is up more than 55% from five years ago, when those payments were just $0.43, for a compounded annual growth rate (CAGR) of 9.3%.

Any time you see a CAGR of more than 5%, that’s a strong number, and TD’s rate of increase is far in excess of that.

Algonquin Power & Utilities (TSX:AQN)(NYSE:AQN) may not be as safe a stock as TD is, but its payout is also a big higher at around 5% per year. With dividends in U.S. dollars, Canadian investors could see a lot of volatility in their quarterly payments, depending on how volatile exchange rates are. Since 2014, Algonquin has raised its dividend payments by more than 46% for a CAGR of 10%.

It’s a higher rate of growth than TD’s, and it might be an even better buy for dividend investors. There is, however, a bit more risk with this dividend, as Algonquin has generated just US$16 million in free cash flow over the past 12 months, which is well shy of the US$169 million it paid out in dividends during that time. That doesn’t mean that a cut is around the corner, but that investors should keep a close eye on upcoming earnings results before deciding whether to invest.

Canadian Tire (TSX:CTC.A) may not currently pay as high a yield as the other two stocks on this list, but that could change. With a dividend of just 2.9%, the stock’s payouts have been growing very rapidly. Just a few months ago, Canadian Tire announced it was hiking its dividends by an incredible 15%. In five years, its payouts have grown by more than 137% for an impressive CAGR of 19%.

The stock has done a tremendous job in growing its dividend; now it has reached the level where it can attract some serious attention from dividend investors. The one downside is that the company has seen a bit of volatility in its free cash flow, finishing in the red in three of the past five quarters.

Nonetheless, given its incredible rate of growth and that its cash flow is not that far behind dividend payments, a cut is likely not on management’s radar right now.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor David Jagielski has no position in any of the stocks mentioned.

More on Dividend Stocks

Canadian dollars in a magnifying glass
Dividend Stocks

Here Are My Top 3 Dividend Stocks to Buy Now

These top dividends stocks have consistently paid and increased their dividends. Further, this trend will continue.

Read more »

dividends can compound over time
Dividend Stocks

Want a 7% Yield? The 3 TSX Stocks to Buy Today

These TSX stocks are offering high yields of over 7%, making them attractive for investors seeking steady passive income.

Read more »

how to save money
Dividend Stocks

The Smartest Dividend Stocks to Buy With $200 Right Now

These smartest dividend stocks can consistently pay and increase their dividends in the coming years, irrespective of the macro uncertainty.

Read more »

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

3 Utility Stocks That Are Smart Buys for Canadians in November

These utility stocks benefit from regulated businesses and generate predictable cash flows that support higher dividend payouts.

Read more »

Start line on the highway
Dividend Stocks

Invest $10,000 in This Dividend Stock for $600 in Passive Income

Do you want to generate passive income? Forget the rental unit! This option will save you the mortgage yet still…

Read more »

Senior uses a laptop computer
Dividend Stocks

1 Reliable Dividend Stock for the Ultimate Retirement Income Stream

TD Bank (TSX:TD) shares are way too cheap with way too swollen a yield for retirees to pass up right…

Read more »

A worker drinks out of a mug in an office.
Dividend Stocks

Is Brookfield Infrastructure Partners a Buy for its 4.75% Yield?

Brookfield Infrastructure Partners (BIP) has a 4.75% dividend yield. Is it worth it?

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

Where to Invest Your $7,000 TFSA Contribution

The TFSA is attractive for investors who want to generate tax-free passive income.

Read more »