Investing in quality dividend stocks is a proven strategy to build long-term wealth. This strategy also offers the opportunity to create a recurring passive income stream at a low cost. As dividends are not guaranteed, it’s crucial to identify companies that are positioned to grow their payouts every year, enhancing the effective yield-at-cost over time.
Toronto-Dominion Bank (TSX:TD) is one such TSX dividend stock that has generated market-beating returns for shareholders. TD Bank stock has returned 268% to shareholders in the last two decades. However, if we adjust for dividend reinvestments, cumulative returns are much higher at 675%.
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Should you buy TD Bank stock for its high dividend?
In the last 28 years, TD Bank has increased its dividends at a compound annual growth rate of more than 10%, currently offering investors a tasty yield of 4.7%. TD Bank raised its annual dividends to $4.08 per share in 2024, up from $0.25 per share in 1996. During this period, the bank has experienced multiple economic downturns, including the dot-com bubble, the great financial crash, and the COVID-19 pandemic.
The Canadian banking sector is highly regulated, allowing TD and other big banks to benefit from an entrenched position and a wide economic moat. Moreover, the conservative lending process of TD and its peers has allowed them to maintain robust liquidity positions and pay shareholders dividends even during periods of economic turmoil.
Priced at less than 10 times forward earnings, TD Bank stock is cheap and should gain momentum once interest rate cuts improve the lending environment in Canada. Although replicating its historical gains will be difficult for the banking giant.
Considering these factors, Brookfield Infrastructure Partners (TSX:BIP.UN) is a dividend giant I’d buy over TD Bank stock right now.
The bull case for this TSX dividend stock
Valued at $21.6 billion by market cap, Brookfield Infrastructure Partners pays shareholders an annual dividend of US$1.62 per share, indicating a yield of over 4.5%. These payouts have risen from US$0.47 per share in February 2008.
In Q2 2024, Brookfield Infrastructure Partners reported funds from operations (FFO) of US$608 million, up from US$552 million in the year-ago period. Its FFO per unit stood at US$0.77 per share, indicating a sustainable payout ratio of 68%. In the last six months, Brookfield Infrastructure has grown its FFO per unit by 10% year over year.
Brookfield owns and operates a portfolio of cash-generating assets across sectors such as utilities, transportation, data centres, and energy midstream. Its organic revenue growth in Q2 stood at 7% due to inflation-linked rate hikes and the commissioning of over US$1 billion of new capital from its capital backlog in the past year.
Notably, Brookfield Infrastructure deployed US$620 million of growth capital expenditures to increase the rate base at its utility operations and expand capacity across other business segments.
Brookfield’s payout ratio is underpinned by stable, highly regulated, or contracted cash flows from business operations. It aims to increase dividends between 5% and 9% annually, aligning with its FFO growth. In the last 10 years, its dividends have grown at a compounded annual growth rate of 8%.
