Canada’s Newest Dividend Aristocrats

Dividend-growth investors look to invest in companies with track records of raising their dividends. In the U.S., investors look to David Fish’s dividend champions list as the model of consistency. Dividend champions are those companies that have raised dividends for 25 straight years. The U.S. list is further broken down into “contenders” — those with streaks between 10 and 24 years — and “challengers” — whose streaks span five to nine years.

In Canada, there is a single dividend aristocrat list. The list includes all TSX-listed companies that “have followed a policy of consistently increasing dividends every year for at least five years.” Two companies raised dividends this past quarter and have unofficially achieved the aristocrat status. I say unofficially because they need to pay out their dividend in full for the duration of 2018 prior to becoming an official member.

Manulife Financial Corp. (TSX:MFC)(NYSE:MFC) raised its dividend by 7.8% on February 28, 2018. The raise marks the fifth consecutive year that the company announced an increase to its dividend. Over the course of its streak, it has had a healthy compound annual dividend growth rate of 9.5%, and its stock currently yields 3.71%.

Manulife is an interesting case. Dividend-growth investors may be a little hesitant as the company has a spotty history. The company is a former aristocrat, having announced 11 dividend raises between 1999 and 2008 before slashing its dividend in half during the financial crisis. Manulife left its dividend unchanged for 21 straight quarters until finally returning to dividend growth in the second quarter of 2014. Those invested in the company just prior to the cut would still be realizing less dividends today, approximately nine years later.

Its current quarterly dividend of $0.22/share is still 18% shy of its pre-financial crisis dividend of $0.26/share. The good news is that Manulife is in much better shape today with a reasonable 44% payout ratio, which gives ample room for further growth. In comparison, prior to the dividend cut its payout ratio stood at an unsustainable 312%.

A new entry on the list is Innergex Renewable Energy Inc. (TSX:INE). Innergex raised dividends by 3% on February 21, 2018. Its five-year compound annual dividend-growth rate is 2.6%, and its stock currently yields 5.18%.

Innergex IPO’d in 2008 and is a new player on the dividend-growth scene. It first paid a dividend in 2010 and began its dividend-growth streak with its first dividend raise in 2014. Although its low single-digit dividend-growth rate is nothing to get excited about, it has a juicy starting yield, which makes it an attractive option for income investors. The company’s payout ratio as a percentage of free cash flow has decreased year over year, which bodes well for future dividend increases.

Credibility and liquidity

One benefit of achieving dividend aristocrat status is the added liquidity once the stock is added to the many funds that track the Canadian Dividend Aristocrat Index. It also adds a level of legitimacy to the company’s dividend-growth streak, and the company will begin to show up on more dividend screeners, further improving the stock’s visibility. Investors would be wise to get in now before Manulife and Innergex receive official aristocrat status.

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Fool contributor Mat Litalien is long Manulife Financial Corp. 


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