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Are you looking to buy stocks for their dividends but also for passive income growth? Today, we’re going to take a brief look at three names that could help investors grow their passive income over the years.
A neglected dividend growth stock
Dividend growth can come from unlikely places. Of course, some of the best dividend studs on the TSX hide payout ratios that suggest room for income growth. But digging into growth stocks can also bring out some intriguing choices. Look at Cargojet (TSX: CJT), for example. This is a name that could see big returns for investors by the mid-1920s – potentially up to + 790%, in fact, according to estimates.
Aviation investors may still ignore Cargojet in favor Air Canada in recent months, however. Because? For one thing, the commercial airline that carries the flag is relatively cheap. Of course, that doesn’t necessarily mean it’s the best-value title on the TSX. However, there are cheap stocks … and then there are cheap ones quality stocks. And Air Canada firmly belongs to the second category.
For regular passive income payments, however, Cargojet is the title to buy. Some of its steep five-year returns will come through dividend payments. And those payments could conceivably grow over time. So, for investors who hold long-term, Cargojet might be worth a second look. This name packs a 0.43% dividend yield with an expected coverage ratio of only 17% over three years.
There is an ETF for that …
IShares Core Dividend Growth ETF it is built around stocks chosen for their potential to increase payouts. There are many good companies included in this fund. From Apple for Pfizer, not much here will not be familiar to the general Canadian investor. It is weighted primarily by names of health, technology and financial services. The ETF itself pays a dividend yield of 2.3% and trades with a volatility similar to that of the market.
Of course, investors may want to unpack this and other ETFs and choose what they like best. For example, an investor may be dubious that Big Pharma is starting the new year. The same goes for Big Tech, which is starting to be viewed with suspicion by value-focused shareholders. For the casual investor with less time on their hands, however, this is a solid place to start with US dividend growth.
Tech stocks can also hide the safety of dividends. Digging into the normally high-growing field reveals Open text as a potential purchase. Flying under the radar with a 1.8% yield, Open Text is another dividend growth name. The company’s pay ratio is expected to drop from 72% to 29% over the next three years. This means that not only is distribution fairly well covered, but the payout growth could be in the cards.
In summary, buying stocks with long-term dividends is not necessary to find the richest returns. By looking at a dividend hedge along with a company’s history, investors can restrict distribution growth. From ETFs following such assets to neglected infrastructure and technology, there are some strong options for increasing returns out there.
Crazy contributor Victoria Hetherington has no position in any of the titles mentioned. David Gardner owns shares of Apple. The Motley Fool owns shares in and advises Apple and CARGOJET INC. The Motley Fool recommends Open Text and OPEN TEXT CORP.
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