Everyone should save for their future. Commission-free trading platforms like Wealthsimple that also allow the purchase of partial shares make it easy because you can put aside as little as $1 each time. There’s no excuse to not to save.
I’m sure you have more than $1 to save and invest for your future. And here are some Canadian dividend stocks that can help you build a larger nest egg, especially if you’re reinvesting the dividends they pay you.
Many Canadians hold these stocks as core holdings in their portfolios for their retirement nest egg. So, they are good ideas for investors who are just starting out. These blue-chip stocks have dipped along with the market correction, making them more attractive for income.
Bank of Nova Scotia stock
It’s not every day that you see dividend yields of north of 6% from the big Canadian bank stocks. Currently, investors can accumulate Bank of Nova Scotia (TSX:BNS) shares for a yield of close to 6.6%. However, it’s also true that the bank has greater international exposure, particularly in Latin America, which is viewed as riskier but potentially has greater long-term growth. In the current macro environment of higher interest rates and inflation, the bank has underperformed its peers, which is why it offers a bigger dividend yield.
Its trailing 12-month payout ratio is 60%. This is higher than the normal range of 40-50%. Typically, its payout ratio expands like this when the economy is weak. In fact, some economists believe that Canada will experience a recession this year. So, in general, the big Canadian banks — Bank of Nova Scotia included — have increased their loan loss provisions.
Consequently, the higher provisions have cut into the banks’ earnings and inflated their payout ratios. That said, BNS’s dividend appears to be safe, as its payout ratio remains sustainable, and it has a large reserve of retained earnings that could serve as a buffer for a decade of dividends.
Fortis stock
The Fortis (TSX:FTS) stock price also got pulled down by about 8% from its peak of about $61. It appears to be getting some support at a dividend yield of about 4%. At $56.23 per share, the dividend stock trades at about 19.5 times earnings. This seems like a high price-to-earnings ratio, but believe it or not, it is a reasonable multiple for the regulated utility. This is because its earnings are predictably growing over time, translating to predictable dividend growth.
This is evident from Fortis stock having one of the longest dividend-growth streaks on the TSX — about 49 consecutive years of dividend increases! Its 10-year dividend-growth rate is 6.1%. Its business is so predictable that management already guided to increase the dividend by 4-6% per year through 2027.
Based on its dividend, valuation, and growth profile, the defensive stock could deliver total returns of more or less 8-10% per year over the next few years. If it dipped to the low $50s, conservative investors should certainly take a closer look.
Investor takeaway
Both stocks are good for lining your nest egg. It takes more than two stocks to build a diversified portfolio that could set you up for a secure financial future, though. Check out the best Canadian stocks to buy!
