Stocks that grow their dividends make for very appealing investments over the long haul. A good example of that is Canadian Tire Corporation Limited (TSX:CTC.A) which has developed a very strong track record in that area.
Currently, it pays investors a dividend of around 3.1% annually. And while that might not seem terribly high, it’s a lot higher than it was just a few years ago.
Quarterly dividend payments of $1.0375 have more than doubled from the $0.50 that was being paid out to investors five years ago. That works out to a compounded annual growth rate (CAGR) of about 16%.
To put into perspective just how big of an impact that has had on the dividend, consider that if the dividend had remained unchanged, the stock would be yielding just 1.5% today.
A dividend that low would have a hard time attracting many income investors. Instead, at over 3%, it becomes a much more formidable investment option for investors that need some recurring cash flow.
Another stock that has raised its payouts over the years is A and W Revenue Royalties Income Fund (TSX:AW.UN). The company recently raised its dividend payments from $0.154 every month to $0.159, for a modest increase of 3.2%.
While it hasn’t seen the same level of increases that Canadian Tire has seen in recent years, A&W’s stock has still averaged a very good CAGR of over 6%.
An important advantage that A&W has over Canadian Tire is that its payouts are made on a monthly basis, which can be very valuable to investors that are on a fixed income or that need payments that are more frequent than every three months.
A&W also pays a higher dividend as well, yielding around 4.4% today, making it a good option for income investors.
And with the stock rising more than 20% over the past 12 months, A&W has not only provided investors with a great dividend, but also an opportunity to profit from a soaring share price as well.
The good news is that there is still a lot of potential for the stock as the A&W brand looks to be as strong as ever.
The double-digit increase is not uncommon for the company and payouts have increased by more than 40% since the $0.14 payments that Ritchie Bros was paying five years ago. With a CAGR of around 7.3%, it’s a good rate of increase that can help attract investors.
Unfortunately, with a dividend yield of just 1.6%, it’s still a fairly low dividend overall. However, like what we’ve seen with Canadian Tire, that can change in a short amount of time.
While dividend payments generally won’t normally fluctuate unless there is a rate hike, the rate of increase is often a lot more volatile.
If a company undergoes a big change or sees its growth prospects getting a lot stronger, it can sometimes result in a significant increase to its dividend payments.
What’s important for Ritchie Bros investors to remember is that the company has shown a commitment to creating value. And while it may take a while for the dividend to get up to over 3%, all it takes is one good year or one good quarter to accelerate that.
Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.
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.