Tag Archives: TSX:TD

3 Top Dividend Stocks For 2020

Summary

  • 10 authors (including me) chose 1 top stock each for 2020.
  • I chose Pembina Pipeline as my top idea. I explain why below.
  • Earlier this month, I bought Pembina Pipeline and TD Bank for their safe ~4-5% yields and reasonable valuations.
  • I will consider buying Intact Financial in the future.

Ten contributors at Motley Fool Canada (including myself) put together a list of top Canadian stocks for 2020. My fellow colleague, Chris Liew, coincidentally chose the same top idea as me, so there are nine top stock ideas instead of ten.

My top stock for 2020 is Pembina Pipeline (TSX:PPL)(NYSE:PBA). Just like my top stock pick of Enbridge (TSX:ENB)(NYSE:ENB) for December 2019, I chose Pembina as a defensive name that pays a nice dividend. They’re both energy infrastructure companies that generate cash flow that is quite stable

From the remaining 8 names, I also like TD Bank (TSX:TD)(NYSE:TD) as a solid dividend investment, while Intact Financial (TSX:IFC) is a quality business that I’d consider buying in the future.

pretty young lady thinking

Pembina Pipeline yields 5%

Pembina offers nice monthly income and stable growth, which in combination, can deliver long-term total returns of roughly 10-13% per year.

Mick Dilger has been Pembina’s CEO since 2014 and before then, he was the company’s COO. Since 2014, the company has increased its operating cash flow per share by about 14.8% per year.

Pembina just completed the Kinder Morgan Canada acquisition earlier this month, which was ahead of schedule. Keeping its promise, Pembina increased its monthly dividend by 5%.

The forward yield is nearly 5.2% based on the higher monthly dividend of CAD$0.21 per share that will be declared in January 2020 and payable in February 2020.

Pembina has a track record of growing its profitability. It has increased its adjusted EBITDA over time. Based on its midpoint guidance, Pembina’s adjusted EBITDA per share will grow about 6.4% from 2019 to 2020.

graph showing Pembina Adjusted EBITDA from 2016-2020
Source: December 2019 Presentation (pdf), Slide 23

Pembina is a trustworthy dividend stock. It has maintained or increased its cash distribution or dividend every year since its income fund days as early as 1997. In late 2010, Pembina changed to a corporation. Since then, it has increased its dividend by almost 62%, while reducing its payout ratio over time.

The energy infrastructure company is committed to maintaining a payout ratio of less than 100% of fee-based distributable cash flow. This payout ratio is estimated to be roughly 78% in 2019, which is much lower than 2015’s 135%.

Therefore, Pembina stock has been increasing its dividend payout, while improving the safety of its monthly dividend.

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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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