3 TSX Companies With Dividends That Outpace Inflation

If you want to preserve your passive income in 2023, here are three dividend stocks that are steadily beating inflation.

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If you want to preserve and even grow passive income, you have to find Canadian stocks that are consistently growing their dividends. There are plenty of reasons to prefer dividend-growth stocks over those with high dividends.

Firstly, a dividend growth stock needs to have a predictable business model and a foreseeable opportunity to grow. If a company can’t grow earnings and cash flows per share, it shouldn’t be raising its dividend.

Secondly, dividend-growth stocks need to have a solid balance sheet that can support both business and dividend growth. Companies that consistently grow their dividends need to be very efficient with their capital.

A growing dividend can be a sign of a very shrewd business. Here are three dividend-growth stocks with long-term staying power.

A top Canadian energy stock for dividends

Canadian Natural Resources (TSX:CNQ) has increased its dividend for 23 consecutive years. In fact, its dividend has grown by a +20% compounded annual rate in that time. For context, its base dividend is over 21 times larger than it was in 2002.

That is an impressive track record for any stock, let alone a cyclical energy stock. Certainly, oil prices have been weaker than expected this year. However, even at US$75 per barrel, a stock like Canadian Natural Resources can make a lot of money.

The company has very low cost of production and it has decades of energy reserves. It paid down a lot of debt last year, so its business is more sustainable than ever. This stock has pulled back 7.5% this month. It trades with a 4.5% dividend yield, and chances are very likely that dividend will keep growing over the coming years.

An infrastructure stock beating inflation

Another dividend stock that should be a good hedge against inflation is Brookfield Infrastructure Partners (TSX:BIP.UN). Since 2009, it has increased its dividend annually by a compounded rate of 10%!

It has grown its funds from operation (FFO) per unit (a key marker of profitability) by a compounded annual rate of 16% in that time. This suggests that its dividend is growing at a sustainable rate, while allowing the business to still fund accretive growth plans.

Brookfield has a high-quality portfolio of essential infrastructure businesses. 90% of these businesses are contracted or regulated and 75% capture inflation-indexed earnings. If inflation continues to rise, its business should continue to see strong organic growth.

After a recent 3.5% pullback, the stock trades with a 4.4% dividend yield. It looks like an attractive bargain for growth and income right now.

A transport stock with decades of dividend growth

Canadian National Railway (TSX:CNR) has a great “track” record (pun intended) of consistently raising its dividend. For the past 20 years, it has grown its dividend by a 16% compounded annual rate! Its current dividend is almost 20 times larger than it was in 2002.

Canada only has two major railroads and there is very little chance of another major competitor emerging (unless there some sort of technological innovation that can move thousands of tonnes of bulk materials and goods). Given its entrenched (but essential) position, CN is able to earn inflation-plus pricing on its services.

CN has a new chief executive officer who is looking to maximize its network and its vast assets. So far, she has done a great job of moving the business forward. This dividend stock is down 5% this month. It only pays a 2% dividend, but this company could soundly beat inflation and provide attractive +10% total returns over the long term.

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 Robin Brown has positions in Brookfield Infrastructure Partners. The Motley Fool recommends Brookfield Infrastructure Partners, Canadian National Railway, and Canadian Natural Resources. The Motley Fool has a disclosure policy.

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