High-yielding stocks tend to overshadow stocks with a lower yield. Most times, income investors will ignore stocks if they don’t meet a certain yield threshold. However, there is a case to be made for stocks with a lower yield with a high dividend growth rate. This is especially true if you have a long-term investment time-frame.
As an example, a stock yielding 2% that grows its dividend at a compound annual growth rate (CAGR) of 25% will provide investors with more income than a stock yielding 5% that grows its dividend by 5% annually. This happens in year 10 and accelerates every year afterwards. By year 20, an investor would have received more than quadruple the income from the low yielding stock.
As per the rule of 72, a stock with a 25% growth rate will double your income every 2.88 years. With that in mind, here are two Canadian Dividend All-Stars with a history of significant dividend growth.
Savaria is a small cap that offers a range of accessibility products including stair lifts, platform lifts, and elevators. The company sells its products through a network of approximately 300 retailers across North America. Savaria is a high growth stock, operating in an industry that has increasing demand.
The company has grown earnings by a CAGR of 78% over the past five years. It’s no wonder then, that its dividend growth rates have followed suit. Its five-year average annual dividend growth rate is 24.8%. The best part? It’s accelerating. Its three-year and one-year growth rates come in at 29.9% and 32.9%, respectively.
As if that weren’t enough, the company also pays its dividend monthly. As such, investor income is compounded at a faster rate. Analysts expect the company to grow by approximately 30% over the next few years, and you can expect its dividend to rise in line with growth rates.
Tecsys is a micro-cap and is about four times smaller than Savaria with a market cap of $186 million. This software company develops and sells enterprise-wide supply chain management solutions. Tecsys is also operating in an industry that is experiencing high growth. Over the past five years, the company has doubled sales and earnings.
The company has an impressive 10-year dividend growth streak. Its five-year dividend growth rate is 23.3% and it has also been trending upwards. In 2017, Tecsys paid out almost 60% more in dividends than in 2016. The company is expected to announce its 2018 dividend raise in November.
On a forward basis, dividends are expected to account for only 37% of earnings and as such, has plenty of room for continued double-digit growth. The company currently yields 1.42% and its dividend is paid quarterly.
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