Dividend investing is considered one of the safest investment avenues. It’s mostly favoured by people who want to create a consistent passive income stream or build their wealth over time.
Dividends are usually paid out by stable, long-standing companies, and investors are attracted by the prospect of the safety of their investments. But it isn’t always as safe as investors think it is.
You see, not all dividend-paying companies are equally stable and reliable. Many companies pay out higher dividends in tough economic times in order to prevent investors from jumping ship.
Dividend investors who only look for higher dividend yields without considering the company’s history of payouts often get disappointed.
As a dividend investor who wants to create a dependable income stream from payouts, you should consider a company’s dividend growth rather than yield.
If a company has increased its dividend payouts for several years even in tough financial times, it’s worth considering. You can be sure that your dividend payouts won’t get blown in the winds of economic crises.
When it comes to a stellar dividend growth history, Telus (TSX: T)(NYSE: TU) and ATCO (TSX: ACO.X) stand among the top few companies in the country.
Telecom royalty
Telus is just one of the three largest telecom companies in the country. This $47 billion (enterprise value) giant has been around for three decades, making it younger than BCE and Rogers– other leaders in the sector.
Telus stands out in fiber-optic and 5G services in the country. With the still increasing demand for higher and higher speed internet, the company’s business is expected to grow for years to come.
But what puts Telus on the radar of most dividend investors is its dividend growth history. The company has grown its dividend payouts for 14 consecutive years, earning it the well-deserved title of a Dividend Aristocrat.
Fourteen years of dividend growth include the great recession of 2008-2009, as well as the mini-episode in 2014. Telus increased its dividend even in the worst economic times.
In the case of Telus, dividend growth history is also associated with a sizeable yield of 4.6%, which makes Telus a fantastic mix of dividend reliability and yield.
A holding company
ATCO has a diversified portfolio of subsidiaries, mostly electricity, gas, and energy companies. The company owns and operates an extensive network of gas pipelines (64,500 kilometres long), and electrical power lines spread out over 87,000 kilometres. ATCO has been in the business for over 70 years.
In terms of dividend growth, ATCO has an even better history — 25 years of dividend growth. This qualifies it as a dividend aristocrat even by U.S. standards.
This stellar history should put you at ease regarding your dividend payouts if you choose to invest in ATCO. The yield is also a decent 3.2%.
Foolish takeaway
Even if you stand by the notion that yield is king than dividend growth is definitely the emperor. Companies with years of dividend growth are investments that you can make and forget about, receiving payouts for years and years without worrying about economic conditions. As an investor, you should always have such companies in your portfolio for stability.
Given the trend of increasing dividends, you can be sure that your dividend payouts will not only be consistent, but they will also keep growing to keep pace with or outrun the inflation — something your hoard of cash can’t do.
