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You can build your own pension by contributing your savings to these attractive dividend stocks today! They pay out sustainably nice dividend yields. Importantly, they also have dividend-growth potential.
Exchange Income just raised its monthly dividend
Exchange Income Corporation (TSX:EIF) just reported its third-quarter results last Thursday and raised its monthly dividend by 4.8%, boosting its dividend yield to just under 6%. It is a diversified and acquisitive company that focuses on aviation services and aerospace and manufacturing opportunities. From the cash flows it generates from its subsidiaries, it pays out dividends. Since its inception in 2004, it has maintained or increased its dividend payment.
Year to date, it has experienced solid revenue growth, adjusted earnings before interest, taxes, depreciation, and amortization, or EBITDA (a cash flow proxy), growth, and adjusted earnings growth of 21%, 24%, and 9%, respectively. It also increased its free cash flow by 10%. However, its adjusted earnings per share fell 2% to $2.49, and free cash flow per share fell 1% to $6.21. This suggests a higher share count is weighing on per-share metrics.
On the bright side, its dividend appears to be sustainable. Year to date, its payout ratio was about 76% of adjusted earnings and 55% of free cash flow (after accounting for maintenance capital spending).
EIF and XIU 10-Year Total Return Level data by YCharts
In the last one-, three-, five-, and 10-year periods, while paying out bigger dividend income, Exchange Income stock also outperformed the Canadian stock market returns. The stock being down about 16% year to date is a good buying opportunity for income. At $44.39 per share, analysts believe the monthly dividend stock is undervalued by about 34%.
Brookfield Infrastructure Partners
Brookfield Infrastructure Partners (TSX:BIP.UN) also took a beating in a higher interest rate environment. The utility stock is down 16% year to date. In the week before, there was accumulation in the shares, as investors or the company found the shares too cheap to ignore.
At $35.23 per unit, Brookfield Infrastructure Partners is still a fantastic buy in a Tax-Free Savings Account (TFSA). The 12-month analyst consensus price target implies a massive discount of about 35%. At this quotation, the utility offers a yield of approximately 6%.
BIP.UN pays out cash distributions that are taxed differently than dividends, depending on the composition of the distribution. To elaborate, its cash distributions might include foreign dividend and interest income, Canadian interest income, other investment income, capital gains, and return of capital. When owning the units in your TFSA, you don’t have to worry about the sources of its cash distribution.
The globally diversified infrastructure company is devoted to a growing cash distribution. It has increased its cash distribution for about 15 consecutive years with a five-year dividend-growth rate of 6.6%. It continues to target cash distribution growth of 5-9% per year.
Like Exchange Income Corp., Bank of Nova Scotia (TSX:BNS) pays out eligible dividends that allow investors to enjoy lower income tax rates for dividends received in taxable accounts. However, if you have room in your TFSA, it makes good sense to park some money in the big Canadian bank stock now.
BNS data by YCharts
As the chart above illustrates, the last time the international bank offered such a big dividend yield was more than 10 years ago. To be clear, the high yield is primarily from a depressed stock price. In a higher interest rate environment, the bank is expecting more bad loans. Therefore, it has been increasing its loan loss provision, which has been weighing on its earnings. Interest rates staying at these levels could mean the stock price won’t go higher anytime soon.
At $58.95 per share at writing, the bank trades at a discount of approximately 25% from its long-term normal price-to-earnings ratio. So, investors might target a three- to five-year price of about $80. Meanwhile, its earnings still cover its dividend. Investors get paid a massive dividend yield of about 7.2% for their patience. During supportive economic times, you can be sure the bank will increase its dividend.