Amid an environment of low interest rates, dividend growth investing has emerged as a viable alternative for the conservative investor. In many cases, dividend yields from Canada’s blue chip companies are more than double the negligible rates on bonds and guaranteed income certificates (GICs).
There are a number of attractive components to a dividend growth strategy. It’s easy to implement, income is compounded and a rising dividend can be a sign of a healthy operating environment and good management.
Given the significant market volatility, dividend growth stocks tend to have fewer fluctuations. This is especially true of conservative asset classes such as utilities, pipelines and consumer defensive stocks.
In Canada, dividend growth is in its infancy. Canadian Dividend Aristocrats are classified as having dividend growth streaks of five or more consecutive years. As of writing, there are approximately 100 companies on the list.
In comparison, the U.S. is home to approximately 60 Dividend Aristocrats and 26 Dividend Kings. Aristocrats south of the border have dividend growth streaks between 25 and 50 years. In Canada, only a handful of companies have achieved such storied dividend growth streaks.
Dividend Kings have achieved dividend growth streaks of 50+ years. There are no Kings north of the border.
Which companies own Canada’s longest dividend growth streaks? The results may surprise you.
Toromont Industries
The third longest dividend growth streak in Canada belongs to Toromont Industries (TSX: TIH). It is surprising to see an industrial so high on the list.
Why?
Industrials are considered cyclical stocks and are usually more risky, as they are reliant on a booming economy.
To support a growing dividend, stable and reliable earnings growth is a must. The fact that Toromont has established such a streak despite some tough economic conditions is testament to the company’s management.
This past March, the company extended its streak to 30-years with a 17.58% raise. Given its low payout ratio (29%), there is no reason the company won’t extend its streak for years to come.
Fortis Inc
The top two spots on the Canadian Dividend Aristocrat list belong to utility companies. Fortis (TSX: FTS)(NYSE: FTS) slots in at number two with a 45-year dividend growth streak.
Fortis is one of Canada’s largest utility companies and has aggressively been expanding south of the border through acquisitions, enabling the company to drive consistent earnings growth.
Reliable the perfect word to describe Fortis’ dividend history. Over the past five years, it has averaged approximately 6% dividend growth. What can investors expect moving forward? First, Fortis has extended its annual 6% target through 2022.
Fortis’ next dividend raise will most likely be announced at the company’s annual investor day in October.
Canadian Utilities
Although it isn’t the biggest in terms of size, there is no TSX-listed company that can match Canadian Utilities‘ (TSX: CU) dividend growth streak. At 48 years and counting, it is on the verge of become Canada’s first ever Dividend King.
Canadian Utilities last raised dividends by 7.5% this past February and has average 9% annual dividend growth over the past 10 years. Combined with its current yield of 4.66%, Canadian Utilities is one of the most attractive income investments on the Index.
It has a reasonable payout ratio (50%) and there is no doubt that Canadian Utilities will achieve Dividend King status in 2021. It would take an unforeseen catastrophic event in order for it to lose its dividend status.
If you’re looking for a reliable investment that will provide you with a growing income streak, theses three stocks are as safe as it gets.
