If you’re in the market to build a steady flow of income, whether for retirement or for more immediate use, investing in dividend-growth stocks such as McDonald's (NYSE:MCD) or BCE (NYSE:BCE) is an effective way to achieve that goal. McDonald's, of course, is a global fast-food chain; BCE is a lesser-well known Canadian communications company that provides wireless and data services across Canada. Both companies are great options to consider when building a portfolio for long-term growth.
In contrast to GE's current dividend worries, companies that offer regular dividend increases generally run mature and stable businesses that can withstand recessions, financial crises and changes brought about by technology.
More importantly, rewarding investors on a sustained basis also tells us a lot about management’s long-term philosophy. These are companies that care about their reputation and want loyal investors.
Regular dividend increases also show that the management is in control of the company’s financial destiny and has the ability to predict the future. It would look very unprofessional and damaging for a management team to hike dividends only to cut them after a couple of quarters.
Keeping these benefits in mind, here are two dividend-growth stocks to consider for your portfolio. These companies have long histories of rewarding their investors and have made their intentions public regarding future hikes.
1. McDonald’s Corporation
There are many reasons one may not like the largest restaurant operators in the world. McDonald's sells fast food—burgers and sugary drinks that many health-conscious consumers try to stay away from. But when it comes to paying dividends, McDonald’s (NYSE:MCD, TO:MCD) has a tremendous track record.
The company has raised its payout each and every year since 1976, when it first started paying dividends. That consistency in dividend growth is very important when creating a stable income stream, particularly for your golden years. You don’t want to invest in stocks which are unreliable and don’t have a strong competitive advantage.
On this performance metric, there are few companies in the US that can beat McDonald’s. Last year the company made $91 billion in system-wide sales, more than double that of its nearest competitor, Kentucky Fried Chicken (NYSE:YUM). At the close of 2017, McDonald’s was running 37,241 restaurants worldwide, including 14,036 in the US and 23,205 globally.
After delivering a 15% hike in its payout early this month, McDonald's now pays quarterly dividends of $1.16 per share. That translates to an annual dividend yield of 2.79% at the current share price. That was the company’s 42nd consecutive annual dividend hike, bringing it closer to the 3-year capital-return target of $25-billion.
In a bid to win over health-conscious customers, McDonald’s is also cleaning its menu and is getting rid of some preservatives and fake colors from its burgers. In an announcement made early this month, McDonald’s said it has removed artificial preservatives from its American cheese, buns and Big Mac special sauce, a move that affects almost two-thirds of its burger lineup in the US.
For new investors, this isn’t a bad time to buy MCD stock after its 4% pullback this year. The stock is currently trading at $164.66 and the majority of analysts have a bullish view on the company, forecasting an 11% upside potential in the stock value in the next 12 months.
2. BCE Inc.
Canada’s largest telecom operator, BCE Inc. (TO:BCE) is another candidate that fits very well in a long-term growth income portfolio. Unlike in the US where competition is cutthroat, the Canadian telecom market is dominated by just four big players.
These companies control about 80% of the broadband and video market and more than 90% of the wireless market. Among them, BCE stock is well-positioned to produce superior returns for its investors. The company is spending billions of dollars to improve its network and prepare for the roll-out of fifth-generation services in coming years.
For income investors, BCE has been a reliable investment. During the past decade, the company has doubled its payout to $3.02 a share. With a dividend payout policy between 65% and 75% of free cash flows, BCE stock is a safe bet when compared with its heavily indebted American counterparts.
Trading at $40.57 and with an annual dividend yield of 5.75%, BCE’s valuations look attractive to lock-in its juicy dividend yield.
Bottom Line
The secret for new investors is to start their saving journey early and focus on income-generating stocks with a long-term investment horizon. By investing in dividend-growth stocks such as McDonald’s and BCE, you can slowly build a retirement portfolio strong enough to produce a regular stream of income during your golden years.