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Canada Revenue Agency: 3 Ways to Earn a Growing Tax-Free Income in 2020

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Hello, Fools! I’m back to highlight three top dividend-growth stocks. As a quick reminder, I do this because businesses with consistently increasing dividend payouts

  • can guard against the harmful effects of inflation by providing a rising income stream; and
  • tend to outperform the market averages over the long haul.

The three stocks below offer an average dividend yield of about 3%. So, if you’re looking to add a big of chunk of growing income to your 2020 (that the CRA can’t touch), this trio of stocks might be perfect for your TFSA.

Natural selection

Leading off our list is oil and gas giant Canadian Natural Resources (TSX:CNQ)(NYSE:CNQ), which has grown its dividend by 60% over the past five years.

Canadian Natural’s payout growth continues to be supported by consistent cash flows, scale efficiencies (as the largest oil producer in Canada), and a strong presence in the oil sands. In the most recent quarter, EPS of $1.04 topped estimates by $0.22, as revenue climbed to $6.2 billion.

More importantly, free cash flow clocked in at a whopping $1.9 billion.

“Canadian Natural’s third-quarter results are an excellent example of how the company’s effective and efficient operations can drive value creation for our shareholders as a result of execution excellence and economies of scale,” said Executive Vice-Chairman Steve Laut.

Canadian Natural shares boast a dividend yield of 3.8%.

Winning with Finning

With dividend growth of 14% over the past five years, heavy equipment specialist Finning International (TSX:FTT) is next on our list.

Finning should continue to use its scale (it’s the world’s largest Caterpillar dealer), broad product support infrastructure, and stable cash flows to deliver steady payment growth for shareholders. In the most recent quarter, EBITDA jumped 40%, as revenue increased 12% to $1.96 billion.

“With the benefit of a lower cost base and efficiency improvements in our operations, we are well positioned to continue to generate consecutive increases in annual earnings in 2020, even in a low growth environment,” said CEO Scott Thomson.

Finning currently offers a healthy dividend yield of 3.4%.

Open communication

Rounding out our list is cloud-based software technologist Open Text (TSX:OTEX)(NASDAQ:OTEX), which has grown its dividend a whopping 120% over the past five years.

Open Text’s solid leadership position, highly recurring revenue stream, and cloud-based tailwinds should be able to fuel strong dividend growth for many years to come. In the most recent quarter, income more than doubled to $74 million, as revenue improved 4.5% to $697 million.

More importantly, the company has generated $842 million in operating cash flow over the past 12 months.

“With a durable business and high recurring revenues, we are tracking to our fiscal 2020 target model,” said CEO Mark Barrenechea. “Open Text remains focused on productivity enhancements within all aspects of our business.”

Open Text currently offers a dividend yield of 1.5%.

The bottom line

There you have it, Fools: three top dividend-growth stocks for 2020.

As always, they aren’t formal recommendations. They’re simply a starting point for more research. The breaking of a dividend-growth streak can be especially painful, so plenty of due diligence is still required.

Fool on.

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 Brian Pacampara owns no position in any of the companies mentioned. The Motley Fool recommends Open Text.

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