Investors hungry for dividend yield shouldn’t look to extend themselves too far, even in this high-rate environment. Still, that doesn’t mean you should abide by something as arbitrary as the “4% rule” or even the “5% rule,” rules of thumb that suggest investors should pursue dividend stocks in the range of 4% or 5%. With rates staying quite high in the early innings of 2024, I’d argue that it makes sense to pursue some of the 6% or even 7% yielders. I view some of the yield heavyweights as safe, with sustainable payouts. However, I don’t think their yields will last long as rates fall and their businesses return back to full speed.
In this piece, we’ll check out two very interesting dividend-growth gems that also have impressive yields that are worth getting behind. With yields of around 5% and long histories of growing their dividend payments over time, I’d have to say the following plays seem to be the best of both worlds at a time like this for investors seeking a nice upfront yield alongside a good shot at long-term dividend growth.
TD Bank
TD Bank (TSX:TD) has faced big challenges just like many of its peers in the Canadian banking scene. So, what makes TD so much different from some of its peers? Aside from the solid risk management, I’m a big fan of the bank’s cash position going into the new year.
As you may remember, TD Bank walked away from a notable proposed acquisition south of the border as regional banks felt immense pain. Indeed, it’s been a while since we feared the regional banking chaos. Now that things have normalized and markets are feeling a bit more euphoric again (especially over trends like artificial intelligence and the metaverse), it’s hard to even remember what things were like a year ago! Since standing pat and steering clear of big deals, TD now finds itself flush with capital.
For now, TD Bank stock has been stuck in the $80 range, thanks in part to a few unimpressive quarters. I think it’s just a matter of time before TD Bank gets back on its own two feet again. The bank recently debuted a new line of fixed-income ETFs (exchange-traded funds) in its already impressive line-up. And as TD goes bargain hunting again (it certainly has the finances to do so in 2024 or 2025), look for TD to start pulling ahead of some of its peers again.
For now, the 5.1% dividend yield looks nothing short of compelling for dividend and dividend-growth investors.
Great-West Lifeco
Great-West Lifeco (TSX:GWO) is a great insurer that’s flirting with new all-time highs again, outdoing many of its peers in the Canadian insurance landscape. With a 5.23% dividend yield, GWO seems to be the perfect mix of growth and income.
With newfound momentum and the means to march even higher, I’d argue 14.5 times trailing price to earnings is way too low a price to pay for such a top-tier insurance juggernaut. The $40 billion insurer saw fourth-quarter earnings hit $740 million — pretty impressive results given recent headwinds facing the Canadian economy. My guess is that more good times are ahead as the firm continues executing efficiently.
