Beat the TSX With This High-Growth Dividend Stock

Are you worried about your dividend stocks underperforming as rates rise? Waste Connections Inc (TSX:WCN)(NYSE:WCN) will outperform with double-digit growth.

| More on:
The Motley Fool

In an environment of rising interest rates, dividend stocks tend to underperform. As rates rise so to do yields on bonds and other guaranteed income investments. This makes dividend investing less attractive to investors. It’s important to note, however, that not all dividend stocks are created equal.

One way to sidestep underperformance is to focus less on yield and more on companies that are growing their dividends — companies that have a strong history of growing sales and earnings that will outperform regardless of interest rates.

One company that meets these criteria is Waste Connections (TSX:WCN)(NYSE:WCN).

Growth profile

Waste Connections has a strong history of growing revenue and earnings. The company has grown revenue by a compound annual growth rate (CAGR) of 34% over the past 10 years. Without missing a beat, it has also posted year-over-year (YOY) revenue growth in each of these years. Although its chart isn’t as smooth as revenue, earnings have growth by a CAGR of 44% over the same time frame. Aside from a couple of blips along the way, it has been pretty reliable in posting YOY income growth.

Take a quick look at the company’s chart below. It’s a thing of beauty.

WCN Chart

Over the past 10 years, Waste Connections’s strong performance has led to gains of 512%! That is an average of 51.2% annually.

Looking forward, analysts are expecting the company to post mid-teens growth through 2020. This may not be at the same clip as its historical averages, but it’s a healthy growth rate nonetheless. Also worth noting: the company has beat analysts’ earnings estimates in 14 straight quarters dating back to the third quarter of 2015. It hasn’t missed earnings estimates since the fourth quarter of 2014. As such, don’t be surprised if the company continues to surprise to the upside.

Rising dividend

As of writing, Waste Connections is yielding 0.85%. Although it may not seem impressive, its yield remains depressed because of significant share price appreciation. This isn’t a bad thing. Waste Connections first started paying a dividend in October 2010. It has since raised dividends for eight consecutive years and is thus a Canadian Dividend Aristocrat.

Waste Connections also has one of the highest dividend-growth rates on the TSX. It has a double-digit dividend-growth rate with one-, three-, and five-year dividend-growth rates of, 22%, 16% and 15%. The company last raised dividends by 14% in late October along with third-quarter earnings. Given its respectable 31.5% payout ratio, Waste Connections has plenty of room for continued double-digit dividend growth.

Foolish takeaway

Waste Connections is a great dividend stock to counter rising interest rates. Investors will enjoy outsized capital appreciation and continued double-digit dividend growth.

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 Mat Litalien has no position in any of the companies listed.   

More on Dividend Stocks

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

2 Stocks Under $50 New Investors Can Confidently Buy

There are some great stocks under $50 that every investor needs to know about. Here’s a look at two great…

Read more »

think thought consider
Dividend Stocks

Down 10.88%: Is ATD Stock a Good Buy After Earnings?

Alimentation Couche-Tard (TSX:ATD) stock might not be the easy buy-case it once was. Here’s a look at what happened.

Read more »

money cash dividends
Dividend Stocks

TFSA Dividend Stocks: Earn $1,200/Year Tax-Free

Canadian stocks like Fortis are a must-have in your portfolio to earn tax-free yields for decades.

Read more »

sale discount best price
Dividend Stocks

1 Dividend Stock Down 11 Percent to Buy Right Now

Do you want a great dividend stock down 11% that can provide years of growth potential? Here's one heavily discounted…

Read more »

Growth from coins
Dividend Stocks

1 Grade A Dividend Stock Down 11% to Buy and Hold Forever 

If you're looking for the right dividend stock at the right price, you're going to want to consider this insurance…

Read more »

Target. Stand out from the crowd
Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

Are you looking for dividend stocks to buy right now? Here are two top picks!

Read more »

edit Taxes CRA
Dividend Stocks

Tax Time: How to Keep More of Your Money

Nearly everyone hates paying taxes, although Canadians can lessen the financial pain with the right tax strategies.

Read more »