Spring Sale
The First Home Savings Account (FHSA) provides total contribution room of $40,000 and up to 15 years of time horizon to grow the money for the purchase of your home. One of the safest investments for your FHSA is Guaranteed Investment Certificates (GIC), which provide principal guarantee and fixed income. Currently, the best one-year GIC offers interest income of about 5.60%.
You can amplify your FHSA savings by investing in solid dividend stocks. You can consider stocks that offer nice and reliable dividend income that’s supported by quality earnings or cash flow. You can better protect your principal by buying these investments at good valuations.
CIBC stock
The big Canadian bank stocks have been reliable dividend income generators for decades. In particular, Canadian Imperial Bank of Commerce (TSX:CM) stock has paid dividends for about 155 years. And it has not had a dividend cut for at least 50 years. Its 10-year dividend-growth rate is 6.1%, which is solid growth.
Since 2022, there have been rising interest rates. Because the bank stock corrected approximately 29% since the peak of 2022, CIBC stock offers an elevated dividend yield of close to 6.5%. At $53.76 per share at writing, it also trades at a discount of about 20% from its normal long-term valuation.
Let’s be super conservative and assume no valuation expansion and a healthy dividend-growth rate of 5% annually. That would represent a yield on cost of 10.5% in 10 years.
After the substantial market correction, CIBC stock is a good buy for long-term investment of least five years in FHSAs for reliable dividend income and long-term total returns. Its dividend continues to be sustained by its earnings with leftovers. Its trailing-12-month payout ratio was 61% of net income.
Enbridge stock
Enbridge (TSX:ENB) is another large-cap stock for big dividends. It is a large North American energy infrastructure company with a massive network of pipelines for the transportation of energy. Over the last 15 years, it has gone from being a high-growth dividend stock to a more mature, high-yield dividend stock.
The stock is down about 16% in the last 12 months. At $47.25 per share at writing, it offers a high yield of 7.5%. The 12-month analyst consensus price target implies a discount of 17%. Enbridge generates primarily cost-of-service or contracted cash flows from a diversified base of investment-grade customers. Through 2025, management expects to increase its distributable cash flow per share (DCFPS) by about 3%, which should translate to similar dividend growth.
After 2025, management projects the DCFPS growth could bump up to about 5%, which could translate to higher dividend growth. Let’s be super conservative and assume no valuation expansion and a healthy dividend-growth rate of 3% annually. That would represent approximated total returns of about 10.5%.
Between the two stocks, without valuation expansion, investors can approximate long-term returns of roughly 11% per year over the next five years, which would be quite good given these are blue-chip stocks. Don’t stop there! Consider diversifying your FHSA portfolio into other top dividend stocks.
