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.
Ritchie Bros. Auctioneers Inc (TSX: RBA)(NYSE: RBA) also raised its dividend payments recently, increasing them from $0.18 every quarter up to $0.20.
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.
