Whether you’re in retirement now or plan to retire decades later, dividend stocks can be a key part in securing your retirement. They can generate passive income and grow your wealth from income generation and price appreciation. If you’re in retirement or close to retirement, you would probably be inclined to maximize current income. In other words, you would focus on high-yield dividend stocks.
If you have decades until retirement, big dividend stocks can help you, too. However, you might be able to build greater long-term wealth by owning stocks that have high dividend growth and not necessarily big yields.
First, here are a couple of popular, large-cap, big-dividend stocks.
Enbridge stock
Enbridge (TSX:ENB) stock offers a mesmerizing dividend yield of just over 7.1% at $49.78 per share at writing. From diversified and credit-worthy clients, the energy infrastructure company generates substantial distributable cash flow, which supports its dividend with a payout ratio of about 65%.
In the near term, investors can expect dividend growth of about 3%, while over the medium term, Enbridge can improve the growth to up to 5%. This means that assuming a fairly valued stock that continues to produce stable results, the stock can deliver long-term total returns of roughly 10-12%.
At the recent quotation, analysts are calling a discount of close to 15% for the stock. If so, valuation expansion can add roughly 3% of return per year over a five-year period. Surely, a total return of 13-15% per year would be a very solid return in a blue-chip stock.
Bank of Nova Scotia stock
Bank of Nova Scotia (TSX:BNS) has been the highest-yielding big Canadian bank stock for some time. After just reporting its earnings yesterday, dipping 1.3%, and increasing its dividend by 2.9%, the big-dividend stock now offers a captivating yield of almost 6.5%.
Like its peers, Bank of Nova Scotia is experiencing higher provision of credit losses (PCL) from a higher percentage of bad loans expected in a recessionary environment. In turn, the higher PCL is weighing on earnings, which is likely to continue throughout the year. For the first half of the fiscal year, the bank witnessed its diluted earnings per share falling 29% to $3.04.
Despite a higher than normal payout ratio, the bank has what it takes to protect its dividend, as it did during the pandemic and the global financial crisis. At $65.66 per share at writing, the undervalued stock also trades at a discount of about 26% from its long-term normal valuation.
Stocks with high dividend growth
Alimentation Couche-Tard (TSX:ATD) has a small dividend yield of 0.85%. However, it has been an outperformer. In the last 10 years or so, it’s turned an initial $10,000 investment into roughly $67,218 for annualized returns of close to 21%. In the period, it also grew its dividend 10-fold.
It generates substantial free cash flow, which allows it to easily service its debt, reinvest back into the business, and pay growing dividends. For reference, its 15-year dividend-growth rate is 23%. Going forward, the global convenience store consolidator continues to see merger and acquisition opportunities, particularly in the United States and Asia.
At about $66 per share at writing, analysts believe the retail stock is a reasonable buy that trades at a discount of almost 12%.
