Income Stocks: A Once-in-a-Decade Chance to Get Rich (2024)

Get paid to get rich! Buy quality income stocks, while they offer you a big dividend yield and wait for price gains.

To combat high inflation, the Bank of Canada has increased the policy interest rate from 0.50% to 5.0% since 2022. This has increased the cost of capital for businesses and made other income investments more competitive against income stocks. Consequently, income stock prices have declined.

Investors can still get rich from investing in big dividend stocks. When you put money in common stocks, you’re investing in the underlying businesses. Some share their profits with common stockholders in the form of dividends. You can hold the shares forever and potentially get a perpetual dividend income stream. If you hold the shares long enough, you’ll get your entire investment back!

Get rich with Bank of Nova Scotia stock’s dividend

For example, income seekers can get a big dividend from Bank of Nova Scotia (TSX:BNS). It yields 6.64% at writing. Assuming the dividend stayed constant and you bought the shares in your Tax-Free Savings Account, you would get your entire investment back in a little over 15 years.

In reality, the international bank managed to increase its common stock dividend by a solid rate of 6.4% per year in the last 10 years. If the bank continued to increase its dividend by exactly 6% per year, it would only take a little over 11 years for buyers today to get their entire investment back!

Notably, the bank stock price action has been weak for a reason. Compared to revenue that was down marginally, its fiscal year-to-date non-interest expense rose 8% to $9,040 million year over year. Furthermore, an upcoming recession has the bank booking higher loan-loss provisions that are weighing on earnings. Therefore, BNS stock’s payout ratio could jump to about 64% of diluted earnings this fiscal year. This is why investors (who can bear the volatility) are given the opportunity to get a massive yield from the safe bank stock.

Investors don’t need to worry about the safety of BNS’s dividend, which is covered by its earnings. Additionally, the bank has a treasure chest of retained earnings that could act as a buffer for the dividend if needed. At least in the past 20 fiscal years, Scotiabank didn’t need to reach into the chest to protect its dividends.

Make money with Brookfield Infrastructure Partners

By reaching for a lower yield, investors might be able to make more money. The idea is that businesses that pay out less money and, therefore, retain more money for their businesses might be able to allocate that capital to create greater value for long-term investors. This is likely the case for Brookfield Infrastructure Partners (TSX:BIP.UN). Besides, its cash distribution yield of approximately 4.7% is not bad at all.

In the last 10 years, the stock delivered annualized returns north of 16%, which is fabulous. The top utility stock achieved funds-from-operations-per-unit (FFOPU) growth of roughly 11% in the past 10 years, translating to a cash-distribution growth rate of 9.1%.

It continues to target FFOPU growth of north of 10% with its business strategy that involves acquiring fitting, high-quality assets, optimizing operations, and selling mature assets. It maintains a target payout ratio of 60-70% that it expects to drive cash distribution growth of 5-9% per year.

Remember that, as an investor, you’re not just getting nice dividend income. If the underlying businesses do well, you can expect awesome price appreciation as well. Now, that’s getting paid to get rich!