In September 2021, Brian Belski, chief investment strategist at BMO Capital Markets, said the TSX had one of its sharpest earnings rebounds on record. He thinks a dividend-growth surge above historical averages is coming over the next 12 to 24 months, because companies have impressive cash hoard.
Canada’s Big Six banks and top insurance companies announced dividend hikes in November and early December 2021. This year, Restaurant Brands International (TSX: QSR)(NYSE: QSR), Park Lawn (TSX: PLC), and Linamar (TSX: LNR) could boost their dividends. The three consumer discretionary stocks have healthy cash flows and low payout ratios.
Healthy profit margin
RBI has returned more than $425 million of capital to shareholders through dividends and share buybacks after the first three quarters of 2021. In the quarter ended September 30, 2021, total consolidated sales increased 12.51% to US$9.37 billion versus Q3 2021.
José Cil, RBI’s CEO, said the quarterly results reflect the value of a diversified business model across three brands in over 100 countries. Because of the highly efficient business model generated strong free cash flow, RBI enhanced shareholder returns through dividend and an expanded $1 billion share-repurchase program.
RBI sunk to below $40 on March 23, 2020, but it has recovered incredibly since then. The current share price of $70.20 is 78.9% higher than its COVID low. Moreover, this $22.11 billion fast-food company maintains a healthy profit margin of 13%. Management could increase the 3.84% dividend post-pandemic.
Growth opportunities ahead
Park Lawn reported impressive numbers after the first three quarters of 2021 due to excellent operating trends. Net revenue and net earnings increased 15.9% and 102.9% versus the same period in 2020. The $1.29 billion company and its subsidiaries own and operate cemeteries, crematoria, funeral homes, chapels, planning offices in Canadian (three provinces) and the United States (16 states).
The stock is an interesting choice, because earnings per share have been growing at a 13% clip annually in the last five years. At $38.06 per share, Park Lawn pays a modest dividend 1.20% and maintains a very low payout ratio (less than 45%). Management announced recently that it expects to exceed its aspirational growth target of $100 in pro forma adjusted EBITDA by year-end 2022.
Park Lawn’s current profit and cash flow can cover dividend payments. But with several growth opportunities in strategic markets, the prospects of dividend growth in the near term are high.
Room for dividend growth
Linamar ranks 33rd in North America’s Top 100 automotive suppliers and 65th in global automotive parts sale. The Industrial and Mobility segments of this $4.52 billion advanced manufacturing company are revenue generators. Besides developing world-class, highly engineered products, both segments are leaders in manufacturing solutions worldwide.
Management expects to report double-digit top- and bottom-line growth when they present the 2021 results soon. After three quarters last year, total sales increased 21.68% versus the same period in 2020. Notably, net earnings soared 122.94% to $370.3 million.
Linamar pays a modest 1.16% dividend. However, there’s plenty of room for dividend growth, given the 8.13% payout ratio. Based on analysts’ forecasts, the $69.07 share price could climb 40.32% to $97.80 in 12 months.
Healthy cash flows
If the three dividend stocks continue to generate healthy cash flows in 2022, it could prompt the companies to make yields more attractive.
