Canada’s Big Five banks have been paying dividends for more than 100 years, but none of them qualify as Dividend Kings. A Dividend King is a publicly listed company that has increased its shareholder dividends every year for 50 consecutive years. Proctor & Gamble (65), Coca-Cola (59), and Johnson & Johnson (59) in the U.S. are examples of Dividend Kings.
The Toronto Stock Exchange has none yet, but it could have its first Dividend King in 2022 and one more in 2023. Utility stocks are boring to many investors, although Canadian Utilities (TSX: CU) will likely earn the elite Dividend King status next year. Interestingly, another utility sector constituent, Fortis (TSX: FTS)(NYSE: FTS), is next in line.
If the two utility stocks become Dividend Kings, the TSX will have to wait 17 years more to have a third one. However, it will depend on whether Toromont Industries can consistently raise its dividends from this year until 2040.
Dividend increases since 1972
Canadian Utilities, a $9.78 billion ATCO subsidiary, is highly diversified and derives revenue from utilities, energy infrastructure, and retail energy assets. While dividend hikes are the discretion of the board of directors, it hasn’t missed increasing its dividend every year since 1972. The latest increase was on October 14, 2021.
This year, the soon-to-be Dividend King hasn’t been a mediocre performer, given its 23.22% gain thus far. Also, at $36.42 per share, the dividend yield is a generous 4.83%. In Q3 2021, management reported an 8.7% and 15.8% increase in revenues and adjusted earnings versus Q3 2020, respectively.
About 93% of Canadian Utilities’s $912 million total capital investment in the first nine months of 2021 went to regulated utilities. Since its utility assets and energy infrastructure portfolio are highly regulated and covered by long-term contracts, CU’s financial position has been strong for years.
Meanwhile, management will continue to invest in its energy infrastructure business as part of CU’s energy transition strategy (renewable energy generation and clean fuel streams). It acquired the development rights for three solar energy projects and will pursue opportunities in the renewable natural gas space.
6% average annual dividend growth
Fortis not only has 48 years of a dividend-growth streak, but it has delivered superior growth returns in the last 20 years. This $27.42 billion, well-diversified, regulated electric utility company boasts affiliated companies engaged in electric and gas operations.
Currently, Fortis is North America’s leader in the regulated gas and electric utility industry. Its utility customers are in five Canadian provinces, nine U.S. states, and three Caribbean countries. In the nine months ended September 30, 2021, net earnings increased 2.8% to $903 million versus the same period in 2020.
David Hutchens, Fortis’s president and CEO, said, “Our performance reflects the underlying growth at our utilities and the benefits of our regulatory and geographic diversity.” He added the new five-year $20 billion capital plan will extend the robust rate base growth.
High chances
It’s almost a done deal that the TSX will have two Dividend Kings soon, and you can bet on it today.
