Tag Archives: NYSE:TD

3 Important Dividend Stocks In My Stock Portfolio

I have a strong reason to keep dividend stocks, Johnson & Johnson (NYSE:JNJ), Brookfield Infrastructure Partners L.P. (TSX:BIP.UN, NYSE:BIP), and Toronto-Dominion Bank (TSX:TD, NYSE:TD), in my portfolio.

Johnson & Johnson logo

Johnson & Johnson

Allow me to be crystal clear. J&J will not deliver the highest returns as a stock in the healthcare space. I have other stocks for that. At the moment, that includes deep-value dividend stock, CVS Health (NYSE:CVS).

However, J&J’s financial performance is highly stable and predictable. Since 1999, the diversified healthcare conglomerate has increased earnings every single year on a per-share basis. Not surprisingly, it has increased its dividend every year in that period as well. 

Source: F.A.S.T. Graphs – J&J’s earnings and dividends persistently grow

Therefore, J&J stock serves as an excellent anchor for a diversified portfolio. Even when a recession hits, there’s no need to worry about its staying power. In fact, in the last two recessions, it thrived with double-digit earnings and dividend growth!

To sum it up, JNJ stock serves as a stabilizer and high-quality cash cow in my portfolio. I’ll continue adding to it at good valuations as a core holding of my diversified portfolio. 

Currently, I’d consider the stock to be fairly valued to modestly undervalued. At $135 per share, it trades at 15.7x earnings and is estimated to have earnings-per-share growth of 6% per year over the next three to five years. The stock also tends to command a premium multiple due to its high quality.

JNJ stock offers a safe yield of 2.8% backed by a payout ratio of 44%. It’s set to increase its dividend in late April.  

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Why TD Bank is a Top Dividend Stock to Buy Now

Low-Risk Toronto-Dominion Bank

  • Recent Price: CAD$72.20
  • Yields: 4.1%
  • Dividend Growth of +7%
  • 5-year total returns estimate: 11-12% per year
  • Discount of ~12%

Toronto-Dominion Bank (TSX:TD)(NYSE:TD) has a 1st or 2nd position in Canada and a sizeable business in the U.S. (about 38% of net income). It focuses on retail banking, which is perceived to be lower risk.

Recent Performance

TD’s recent performance has been stable. In the first 9 months of fiscal 2019, TD’s revenue climbed 6.8% to CAD$30.7 billion and adjusted earnings-per-share rose 5.6% to CAD$5.11. The U.S. Retail segment continues to be the key driver of growth. The provision for credit losses ratio was 0.43%, which aligns with the average of the Big Six banks.

TD’s capital position remains strong with its common equity tier 1 capital ratio at 12%, and its shareholders’ equity rose 11% from $78 billion a year ago to $86 billion today.

Strong Dividend Track Record

TD has reached our minimum yield target of 4.1%.

Source: TD Q3 2019 Quick Facts (pdf)

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How to Create a Passive Income Portfolio

To create a passive income portfolio, you can invest in bonds or stocks that generate interest or dividend income without you having to lift a finger. I prefer to invest in stocks which have outperformed bonds in the long run.

I also like the concept of investing in stocks because I’m owning stakes in businesses and benefiting from their profits (although I also take on their risks). This is markedly different from purchasing bonds for which you’re lending your money to governments or corporations for interests in return.

In fact, dividend investing is my favorite way to generate passive income. There are so many safe dividend stocks to choose from. Even in a booming stock market like today, you can still find quality businesses at good valuations.

Here’s how to create a passive dividend income portfolio:

  • Buy stocks that offer safe dividends at good valuations
  • Diversify but don’t di-worsify
  • Aim for a low-maintenance portfolio that’s replicable, scalable, and can be largely automated
grow a money tree

Buy stocks that offer safe dividends

The U.S. and Canadian stock markets offer yields of 1.8% and 2.8%, respectively. There are plenty of safe dividend stocks that offer higher yields of about 3-6%.

However, typically, the higher the yield of a stock, the slower its dividend growth will be. (Sometimes, high yielders don’t increase their dividends.) Similarly, low yield stocks tend to increase their dividends faster. Typically, dividend growth stocks are safer and better than stocks that simply maintain their dividends.

Buy stocks at good valuations to protect your invested capital and maximize your gains.

Here are a few examples.

A high yield example

NorthWest Healthcare Properties REIT (TSX:NWH.UN) owns a high quality portfolio of medical office buildings and hospital properties in major markets in Canada, Brazil, Germany, The Netherlands, Australia, and New Zealand.

The healthcare REIT generates stable cash flows from having a high occupancy of about 96% and a weighted average lease expiry of 13 years. Additionally, it gets organic growth from having more than 70% of its net operating income indexed to inflation. It also has CAD$370 million projects in its development pipeline that’ll also add to growth.

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