Dividend growth stocks are a favourite of many investors because your cash flow will rise over time and you don’t have to do anything but hold the stock. For instance, if a company were to raise its dividend every year by 5% or more, in about 14 years those dividend payments will have doubled, and the higher the rate of increase is, the quicker that will happen.
The benefit for investors is that your original purchase is generating a much higher payout than when you first bought it. Bank stocks in particular offer great prospects for growth, as the industry provides a lot of stability and long-term growth, especially as interest rates rise and the economy continues to do well.
The two bank stocks listed below recently raised their dividend payments and could be great additions for investors looking to buy for the very long term.
Bank of Montreal (TSX: BMO)(NYSE: BMO) released its quarterly earnings last week, announcing that the bank would be raising its quarterly payment from $0.93 to $0.96, an increase of just over 3%. BMO will now pay its shareholders 3.8% per year in dividends along with any share appreciation that investors can earn from holding the stock.
In the past 12 months, the stock has risen 10%, and over the last five years it has grown by more than 60%. While the capital appreciation is great, the dividend growth makes BMO an even better buy. Quarterly payments have grown by 30% since 2013 for a compounded annual growth rate (CAGR) of 5.3%. If BMO maintains that rate of increase, then it would take a little over 13 years for its payouts to double.
In four years, BMO’s net sales have risen over 34%, while earnings have grown by 28%.
The stock is a great investment for anyone looking to earn a modest return who doesn’t want to take on too much risk to do so.
National Bank of Canada (TSX: NA) is another good option for dividend investors, as it too raised its payouts recently. Quarterly payments were bumped up two cents to $0.62, or a 3% increase, every quarter. The bank is now paying its shareholders 4% per year and is one of the highest yields you’ll find from a bank stock listed on the TSX.
National Bank’s dividend has also seen more growth than BMO over the past five years, rising 43% during that time for a CAGR of 7.3%. If the bank were to keep that rate of increase consistent, it would take less than a decade for its dividend payments to double in value. It’s a good incentive for investors to consider this lesser-known bank stock, as it’s also produced strong returns over the years.
In the past 12 months, National Bank’s stock has risen 15% and it has more than doubled in 10 years. One of the benefits of investing in a less popular stock is that it trades are more modest multiples than that of its peers, which is true for National Bank, as it is currently valued at only 11 times earnings compared to the industry average of 12.
