A Canadian Dividend Aristocrat typically refers to a TSX stock that has increased its dividend for at least five years. Ever wonder what a Canadian Dividend Aristocrat must be like before it actually becomes one?
Let’s rewind a bit. The stock must pay its first dividend and after that, be able to continue increasing its dividend year after year. Therefore, it should generate stable (ideally growing) earnings.
I believe I have a stock here that is a Canadian Dividend Aristocrat in the making. However, I’m probably way ahead in this thinking because it’ll likely take years before it will pay its first dividend.
Why do I hold shares of this stock now if it pays no dividend? …because if I’m right, this stock is going to give me a whole lot of capital gains before it initiates a dividend.
Right now, this small-cap stock has better places to allocate its capital. It was no April Fool’s joke when it announced another acquisition on Thursday, which drove the stock price 13% higher.
Other than being dividend stocks, what do Pepsi (NASDAQ:PEP) and Fortis (TSX:FTS)(NYSE:FTS) have in common?
The dividend stocks have resilient earnings. They are Dividend Aristocrats with a track record of dividend increases. Pepsi and Fortis pay dividends that are sustainable. They offer nice yields of about 3-4%
I use a method that suggests good stock price ranges to buy this type of dividend stocks at. Recently, I have used exactly this method to buy shares of Pepsi and Fortis. I’ll explain the method later in this article. First, let’s go through the above commonalities in more detail.
As you may know, I’ve been investing in stocks for about 13 years. I surely love it when my stocks provide outperforming returns. Of course, there are laggards, too.
What more can stock investing be about if it’s not just about returns? Every stock investor wants to get rich, right?
I discuss below why earnings quality and dividend income could be important to you.
Since I delved into growth investing, including in small caps, I’ve become more deeply appreciative of stocks with underlying businesses that have superb earnings quality.
I hate to break the news. Stocks with high earnings quality won’t give you the greatest returns. However, they give you something else — a defensive, low-risk holding. These kinds of stocks should provide reassurance to any stock investor when the macro environment is in turmoil.
The more conservative you are as a stock investor, the bigger percentage of these types of stocks you should hold in your stock portfolio.