TFSA Investors: This Dividend-Growth King Just Hiked its Dividend by 38%

Canadian Tire Corporation Limited (TSX:CTC.A) recorded an incredible quarter to go with a massive 38% dividend hike. Here’s why TFSA investors should seriously consider the stock today.

| More on:

Dividend-growth investing is a wonderful strategy for young people today who are decades away from their expected retirements. What makes dividend-growth investing so great? As a younger investor, you may not need the income from dividend payments now, but you will at some time down the road, so while you wait, the dividend will keep growing, and the yield based on your original principle will keep increasing as years of dividend hikes add up.

It’s like planting a seed that will eventually grow into a fruit-bearing tree. In the first few years, you won’t benefit from fruit, but later you’ll thank yourself for planting the tree a decade ago. With dividend-growth investing, not only do you get to watch your dividend grow over time, but you also get to reap the rewards of capital appreciation, since dividend-growth kings typically offer fantastic capital gains to go with outstanding dividend hikes.

How? Real dividend-growth kings typically have wonderful businesses with durable competitive advantages and strong growth profiles. That translates to a huge amount of cash given back to shareholders gradually over the long haul (either in the form of an upped dividend or through share buybacks).

Where’s the best place to plant your dividend-growth stocks? Your TFSA is a great place, especially since you’re essentially betting on a low-risk, high-return type of security that will grow tax free!

One such dividend-growth king that you should consider today is Canadian Tire Corporation Limited (TSX:CTC.A), a retailer that’s head and shoulders above the competition thanks to its strong management team, wide presence in Canada, and a portfolio of brands that have been trusted by Canadians for many years.

While the general public is still afraid of the entire retail segment, Canadian Tire continues to move in an upward trajectory, albeit in a rockier fashion. I believe the fears over the retail sector have created a huge buying opportunity for investors who want a piece of a Canadian icon that’s also a dividend-growth king.

The company recently reported fantastic Q3 2017 numbers, which saw revenue increase to $3.3 billion, up from $3.13 billion on a year-over-year basis. The quarterly dividend was hiked by a whopping 38% to $0.90 per share, up from the original $0.65 per share. That was the cherry on top, which caused shares to surge over 3% in a single trading session. Given the terrific results, I thought shares should have jumped by at least 6% for the day.

In addition, management set a 10% annual profit growth target for the next three years. That’s really something to get excited about! I believe the strong results, dividend hike, and an ambitious new target will cause shares of Canadian Tire to sustain a rally to much higher levels from here.

Bottom line

Canadian Tire is an exceptional dividend-growth stock that I don’t think gets the credit it deserves. Sure, it’s in the retail industry, but that doesn’t mean it’s going to fall at the hands of digital disruptors. In fact, Canadian Tire has a strong moat and a management team that knows how to adapt, so digital retailers are going to have a difficult time penetrating the company’s wide moat.

The third quarter was excellent, and if the company can meet or exceed its three-year target (I think it can), then expect more generous double-digit percentage dividend hikes like this one on an annual basis.

Long-term investors should do themselves a favour by adding a position to their TFSAs today.

Stay smart. Stay hungry. Stay Foolish.

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 Joey Frenette owns shares of Canadian Tire.  

More on Investing

money cash dividends
Dividend Stocks

2 TSX Dividend Stocks Paying Big Income in a Bearish Market

Despite a pullback in the market, there are still plenty of dividend stocks paying big income to buy. Here’s a…

Read more »

Paper airplanes flying on blue sky with form of growing graph

Here’s Why Smart Investors Are Buying Bombardier Stock Hand Over Fist

Bombardier stock jumped 16% in a week amid a bearish market. What caused investors to buy this stock hand over…

Read more »

data analyze research

My 3 Top TSX Portfolio Holdings Going Into April 2023

Are you looking for TSX stocks to add to your portfolio in April 2023? Here are my three top holdings!

Read more »

consider the options
Dividend Stocks

Better Buy for Dividends – Enbridge or BCE Stock?

Given the favourable market conditions, higher dividend yield, and cheaper valuation, I am more bullish on Enbridge.

Read more »

Dividend Stocks

3 of the Best Canadian REITs to Buy While They’re Still Undervalued

These three Canadian REITs have attractive growth potential and are trading undervalued, making them some of the best to buy…

Read more »

Investor wonders if it's safe to buy stocks now
Bank Stocks

Better Bank Buy: Bank of Montreal or Bank of Nova Scotia?

Bank of Montreal and Bank of Nova Scotia trade near 12-month lows. Are these bank stocks oversold?

Read more »

Target. Stand out from the crowd

3 TSX Stocks to Buy in the Current Market Dip

The market dip from the U.S. banking crisis has created an opportunity to buy three fundamentally strong stocks before they…

Read more »

stock market
Metals and Mining Stocks

2 TSX Mining Stocks to Buy as Gold Prices Surge Past $2,000

Bullish on gold? Investing in quality mining and royalty stocks such as Barrick Gold is a solid bet in 2023.

Read more »