Want a safe dividend stock that pays 9%? Here’s how to get it

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If you’re looking for a dividend-paying stock that’s currently earning even more than 8%, you know you’re probably going to take some risk. But there is still a way to earn a great return without diving into the trash for high-risk dividend-paying stocks that are paying impressive returns today that might fade away tomorrow. The answer lies in dividend growth stocks.While they might not pay you 9% today, if you keep them, you could earn even more on your initial investment. As long as you’re ready to invest for the long term, it’s a great way to balance security with high returns.

Let’s use Bank of Nova Scotia (TSX: BNS) (NYSE: BNS) as an example.

The power of dividend growth

Scotiabank currently pays its shareholders a quarterly dividend of $ 0.90, or $ 3.60 per share for the full year. If you were to buy the shares for $ 55, you would get a dividend yield of 6.5%. It’s already high enough for a banking action at the start.

Scotiabank is down more than 20% this year because investors are bearish in bank stocks due to the coronavirus pandemic and the recession it has caused. This makes investing in Scotiabank particularly advantageous at the moment, as you can get a higher than normal return.

However, this payment is also likely to increase over the years. Here’s a look at the dividends paid on the stock over the past five years:

SNB dividend data by YCharts

Five years ago, Scotiabank paid its shareholders $ 0.68 each quarter. The bank increased its dividend payments by 32% during this period, representing a compound annual growth rate of 5.8%. Assuming Scotiabank continues to increase its dividend payouts by 5.8% annually for the foreseeable future, here’s what its dividend payouts would look like over the next decade on a $ 10,000 investment today:

An Quarterly payment Annual dividend payment % of initial investment
0 0,90 USD 654,55 $ 6,55%
1 0,95 $ 692,29 $ 6,92%
2 1,01 USD 732,21 $ 7,32%
3 1,06 $ 774,43 $ 7,74%
4 1,13 USD 819,09 $ 8,19%
5 1,19 $ 866,32 $ 8,66%
6 1,26 $ 916,27 $ 9,16%
7 1,33 $ 969,11 $ 9,69%
8 1,41 USD 1 024,99 USD 10,25%
9 1,49 USD 1 084,09 $ 10,84%
dix 1,58 USD 1 146,60 $ 11,47%

As you can see, the percentage you earn on your initial investment would rise to over 9% after six years of owning the stock. It would reach 10% after eight years. Even if you haven’t increased your investment, you can benefit from the increasing dividend payouts from the bank.

It’s important to note that these increases are never guaranteed – nor are the dividend payments themselves. And with COVID-19 still creating a lot of uncertainty in the economy, bank stocks could slow their increases in the near future.

Conclusion

If you want to earn a high dividend yield, you will either need to take significant risks or be patient with a growing dividend. Too often there isn’t much room between these two options. Stocks that pay high dividends normally do so because they have fallen sharply – usually due to a problem with the business.

Bank stocks are unique this year in that they have bottomed out for several years and are still good purchases. This is where investing in a stock like Scotiabank or another Big Five bank today can be a great way to ensure high returns for many years to come.

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