Prediction: 10 Years From Now You’ll Be Glad You Bought These Magnificent TSX Dividend Stocks

When it comes to earning passive income, it’s hard to beat dividend stocks. Offering steady, sometimes growing income, they can pay off handsomely over time. Not only is it possible to find dividend stocks whose yields surpass what treasury bonds offer, many dividend stocks increase their payouts over time. Coca-Cola has raised its dividend so many times over the last 35 years that Warren Buffett now gets 54% of his 1990 Coca-Cola stock investment back every single year!

So, dividend stocks have a lot of potential, particularly if you are patient enough to stick around for their dividend hikes. In this article, I explore two magnificent dividend stocks that will likely reward you handsomely if you buy today and hold for 10 or more years.

Alimentation Couche-Tard

Alimentation Couche-Tard Inc (TSX:ATD) is a Canadian gas station company. It is best known for operating the coast-to-coast Circle K gas station chain. It also has gas station brands in the U.S. and Europe.

Alimentation Couche-Tard is well known for its long-term track record of growing diligently through acquisitions. Circle K itself was an acquisition; ATD bought it from ConocoPhillips in 2003.

What makes Alimentation Couche-Tard’s acquisition strategy unique is its prudence. Whereas many companies will gladly borrow obscene amounts of money to take over other companies, simply for the prestige of owning them, ATD only buys when it can be sure of a good return, and it uses debt sparingly. The company raises money for acquisitions by retaining its earnings, instead of paying out huge amounts of dividends.

Speaking of which: although ATD is a dividend stock, it has a fairly low yield of 1.1%. That’s lower than that of the TSX Index as a whole. However, because of its excellent long-term performance, ATD has been raising its dividend over time. Over the last five years, ATD’s dividend grew at an astounding 23.5% per year! If ATD keeps this up and you buy the stock today, your yield-on-cost could be pretty high 10 years from now.

Fortis

Fortis Inc (TSX:FTS) is a stock that most Canadian dividend investors are familiar with. A Newfoundland-based utility, its claim to fame is having 52 consecutive dividend increases under its belt, which makes it a Dividend Emperor. The stock currently yields about 3.6%.

How has Fortis managed to deliver all of these dividend hikes?

Largely by investing sensibly in its operations. In the 1980s and 1990s, Fortis expanded by buying up other utilities across Canada, the U.S., and the Caribbean. More recently, it has expanded by upgrading its grid, enabling it to charge customers higher rates. The company’s current $26 billion capital expenditure (CAPEX) program is expected to increase Fortis’ rate base from $41.9 billion to $57.9 billion over five years – a 7% compounded annual (CAGR) rate of growth. If the CAPEX delivers on expectations, then investors will be treated to more dividend hikes in the future.

Foolish takeaway

When it comes to dividend stocks, sustainability is the name of the game. While there are plenty of stocks out there that have trailing yields well into the double digits, those same stocks frequently cut their dividends due to excessive payout ratios, struggling operations, or some combination of the two. On the other hand, companies that manage their dividends prudently often maintain, or even raise, their dividend over time. Alimentation Couche-Tard and Fortis together help to illustrate that truth.

The post Prediction: 10 Years From Now You’ll Be Glad You Bought These Magnificent TSX Dividend Stocks appeared first on The Motley Fool Canada.

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More reading

• Crush the TSX With This Income-Generating Dividend Stock
• The 3 Best Canadian Dividend Stocks to Buy in December
• 2 Low-Volatility Stocks With Solid Dividends
• Top Dividend-Growth Stocks to Buy Now in Canada
• 3 Reasons to Buy Couche-Tard Stock Like There’s No Tomorrow

Fool contributor Andrew Button has no positions in the stocks mentioned. The Motley Fool has positions in and recommends Alimentation Couche-Tard. The Motley Fool recommends Fortis. The Motley Fool has a disclosure policy.