2 Overlooked Dividend-Growth Stocks to Consider Today

Here’s why Jean Coutu Group PJC Inc. (TSX:PJC.A) and MTY Food Group Inc. (TSX:MTY) are great picks for dividend growth today.

| More on:
The Motley Fool

Investing in dividend-growth stocks is one of the most powerful and time-proven strategies to build wealth. This means that investors should favour stocks with modest yields that have the ability to grow their dividends over time over ones with high yields that have little to no growth potential.

With all of this in mind, let’s take a closer look at why Jean Coutu Group PJC Inc. (TSX:PJC.A) and MTY Food Group Inc. (TSX:MTY) are great picks for dividend-growth today.

Jean Coutu Group PJC Inc.

Jean Coutu is one of Canada’s largest franchisors of pharmacies with a network of 420 stores located across Quebec, New Brunswick, and Ontario under the banners of PJC Jean Coutu, PJC Linique, PJC Santé, and PJC Santé Beauté. It also owns Pro Doc Ltd., a Quebec-based subsidiary and manufacturer of generic drugs.

Jean Coutu currently pays a quarterly dividend of $0.12 per share, representing $0.48 per share on an annualized basis, which gives its stock a solid 2.4% yield today.

Although it may not seem completely necessary to confirm the safety of a yield under 3%, I think investors should always do so anyways to be absolutely sure, and you can do this with Jean Coutu by checking its cash flow. In the first half of fiscal 2017, its operating cash flow (OCF) totaled $106.4 million, and its dividend payments totaled just $44.4 million, resulting in a conservative 41.7% payout ratio.

You still may not be sold on Jean Coutu being a great dividend stock, so let’s get down to what really matters: dividend growth. It has raised its annual dividend payment for nine consecutive fiscal years, and its 9.1% hike in April has it on pace for fiscal 2017 to mark the 10th consecutive year with an increase.

I think Jean Coutu’s very strong OCF growth, including its 44.8% year-over-year increase to $106.4 million in the first half of fiscal 2017, and its significant amount of cash on hand, including $143.1 million as of August 27, could allow its streak of annual dividend increases to continue through fiscal 2025, making it a great investment opportunity for long-term investors today.

MTY Food Group Inc.

MTY is one of North America’s largest franchisors of restaurants. As of August 31, it has 5,534 locations under 57 brands in operation, 5,457 of which are franchised and 77 of which are company-owned. It’s also worth noting that 46% of its locations are in the United States, 45% are in Canada, and 9% are abroad.

MTY currently pays a quarterly dividend of $0.115 per share, representing $0.46 per share on an annualized basis, giving its stock a yield of about 1% today.

As mentioned before, you should always confirm the safety of a stock’s dividend, regardless of how big or small, and you can do this with MTY by checking its cash flow. In the first nine months of fiscal 2016, its OCF totaled $46.97 million, and its dividend payments totaled just $6.86 million, resulting in an extremely conservative 14.6% payout ratio.

MTY’s yield is very low, but we must not forget that what really matters is dividend growth, which it has been delivering. It has raised its annual dividend payment each of the last five years, and its 15% hike in January has it on pace for 2016 to mark the sixth consecutive year with an increase.

I think MTY’s strong OCF growth, including its 19% year-over-year increase to $46.97 million in the first nine months of fiscal 2016, and its US$310 million acquisition of Kahala Brands, which was completed on July 26, added 18 brands and approximately 2,800 locations to its network, and will amplify its growth going forward, could allow its streak of annual dividend increases to continue for another six years at least, making it one of the best dividend-growth plays in the restaurant industry today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joseph Solitro has no position in any stocks mentioned. The Motley Fool owns shares of MTY Food Group. MTY Food Group is a recommendation of Stock Advisor Canada.

More on Investing

young woman celebrating a victory while working with mobile phone in the office
Dividend Stocks

3 CRA Benefits Most Canadians Can Grab in 2024

You can save on taxes by claiming the dividend tax credit on Fortis Inc (TSX:FTS) shares.

Read more »

A cannabis plant grows.
Cannabis Stocks

Canopy Growth Stock Is Rising But I’m Worried About This One Thing

Canopy Growth stock is soaring as the legalization effort makes real progress in both Germany and the United States.

Read more »

young woman celebrating a victory while working with mobile phone in the office
Investing

3 Roaring Stocks to Hold for the Next 20 Years

These top TSX stocks are excellent long-term buys, given their multi-year growth potential and solid underlying businesses.

Read more »

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

grow dividends
Investing

Here’s My Top 3 TSX Stocks to Buy Right Now

Even though the TSX has been rising, there are still some good bargains out there. Here are three top compounding…

Read more »

Target. Stand out from the crowd
Investing

Prediction: This Canadian Growth Stock Could Double by 2030

Alimentation Couche-Tard (TSX:ATD) is a top growth stock that could do well over the next six or so years.

Read more »

Businessman holding AI cloud
Tech Stocks

Could Investing $20,000 in Nvidia Make You a Millionaire?

Nvidia stock has made investors millionaires in the last 10 years. Is it too late to invest to become a…

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »