Did you know that dividend growth stocks tend to be more stable than other kinds of stocks? Over time, dividend-growing stocks tend to outperform the broader stock market, and with less volatility. Over the years, the dividend aristocrats (a group of stocks with exceptionally long dividend growth track records) have outperformed the S&P 500. Many other dividend growth stocks have as well. In this article, I will explore three dividend growth stocks I’d buy and hold forever.
The Toronto-Dominion Bank (TSX:TD) is a Canadian bank stock that I have held for about four years now. In the time that I have owned it, TD has increased its dividend significantly. I expect it to raise its payout even more in the future.
TD Bank stock is fairly cheap at today’s prices. It trades at 9.6 times earnings, 3 times sales and 1.4 times book value. That’s considerably cheaper than its closest competitor, Royal Bank of Canada, which trades at 11.5 times earnings.
Now, there are reasons why TD Bank is cheaper than Royal Bank. It received a fine this year in the U.S., which cost it about $2 billion. It also had its deal to buy out First Horizon cancelled, allegedly due to issues with its anti-money laundering practices. Still, TD bought out Cowen this year, in a deal that will add hundreds of millions in annual net income. Overall, it’s a solid bank for your buck.
Taiwan Semiconductor Manufacturing
Taiwan Semiconductor Manufacturing (NYSE:TSM) is a Taiwanese technology stock. The company manufactures 59% of the world’s semiconductors (computer chips), making it one of the most economically indispensable organizations on the planet. Every single chip company relies on TSM to manufacture the chips it designs. Many of the big U.S. tech companies rely on it directly, as they’ve recently transitioned to making their own chips.
Taiwan Semiconductor is an important, fast-growing company. Still, its shares are fairly inexpensive, trading at 18 times earnings. Lately, there has been a lot of excitement about artificial intelligence (AI) chips, which TSM manufactures. So, the company may beat expectations in its upcoming earnings release (which is due mid-July).
Bank of America
Bank of America (NYSE:BAC) is a U.S. bank stock that has taken a beating this year. During the U.S. regional banking crisis, BAC stock slipped, despite the fact that it actually gained deposits at the expense of the failed banks, rather than losing them.
Bank of America stock is even cheaper than TD Bank stock. At today’s prices, it trades at 8.6 times earnings, 2.5 times sales, 0.9 times sales, and 8 times operating cash flow. On the whole, it looks fairly expensive.
There are risks with BAC stock as well. With the U.S. treasury yield inverted, the company may face a loss of depositors as they rush into short-dated U.S. treasuries, which have very high yields right now. If Bank of America wants to retain its depositors, then it will have to start offering CD yields that are comparable to treasury yields. That in return will squeeze its net interest income, resulting in slimmer profit margins. It’s a risk, but with the stock as cheap as it is now, it’s one I’m prepared to take.
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* Returns as of 5/24/23
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Fool contributor Andrew Button has positions in Toronto-Dominion Bank, Bank of America and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Bank of America and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.