The last three years have been a roller-coaster ride for businesses, adjusting to the changing consumer trends and escalating capital costs. It was a challenging time for average Canadian households and retirees tackling high grocery prices. Amid such uncertainty, one realizes the need for some reliable sources of income. Stocks of a Dividend Aristocrat can give you a payout in any economic or business condition. Having access to such liquidity can bring some relief when budgets are tight.
Two reliable dividend stocks under $25 to buy now
Now that the economic winter is ending, it is a lesson to save for another winter early. And these two stocks can give you reliable dividend yields of over 6.4% for less than $25 a stock.
Telus stock with a 7% yield
What makes a stock reliable is its resilient business fundamentals and secular growth trends. Even a Dividend Aristocrat can go out of business if its offerings are not relevant. Whenever you look for a stock with a long perspective, see if its business will be relevant in the future and if it has secular growth trends.
Telus (TSX:T) is a telecom stock investing billions of dollars in the 5G infrastructure. It is making itself relevant by offering subscriptions to connected devices. Its Internet of Things (IoT) connections grew in the transportation, buildings, and healthcare industries.
The company has been growing dividends for 19 years in a row, even in periods of downturn. While its fundamentals raise caution as the payout and leverage ratio have exceeded their target range, the Bank of Canada rate cuts will bring some respite. A decline in interest rate will reduce its interest expense in the future and bring the payout and leverage ratio within the target range.
In the worst-case scenario, Telus might pause its dividend growth. However, the 5G ecosystem is laying the framework for artificial intelligence at the edge, hinting at secular growth for this stock. All these factors make its dividends reliable.
CT REIT with a 6.4% yield
Another reliable dividend stock is CT REIT (TSX:CRT.UN) because of the backing of its parent, Canadian Tire. CT REIT owns, leases, and develops stores of Canadian Tire. If the real estate investment trust (REIT) develops a property, it doesn't have to worry about the occupancy as Canadian Tire will lease it. Moreover, it has an arrangement with the retailer to increase the lease by 1.5%. The REIT's rental income increases with rent hikes and more rent from the intensification and development of new properties.
As for the debt, a majority of its debt is interest-only debentures, which reduces the burden of debt repayment. All these factors enabled the REIT to grow its distributions by 3% annually while reducing its dividend payout ratio to 71.4%. The fact that the REIT has maintained this payout momentum for a decade shows its resilience even to the pandemic and high interest rates. The REIT will continue to remain relevant as land is limited.
How to invest in the above stocks
The above two stocks offer a dividend-reinvestment plan (DRIP), which means you can invest a lump sum and let the dividends keep adding to your share count. The DRIP will compound your passive income, and when the crises come, you can exit the DRIP and take higher payouts. Once things normalize, you can return to the DRIP and continue compounding the income.
Canada witnessed a financial crisis between 2008 and 2010 and then in 2022. Had you reinvested your dividends in these 11 years (2011-2021), they would have compounded your returns and given a sizeable passive income. Let's learn from the past and be future-ready.