These TSX Stocks Are Genius Buys for Dividend Growth

Are you looking for dividend stocks that could grow your passive income over time? Here are three top picks!

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For many investors, the dream is to have their portfolio grow large enough to pay for their everyday expenses. While it may seem impossible, for those just starting off in the stock market, the reality is that many investors have achieved that goal. A common way for individuals to work towards that point is by investing in dividend stocks. These are stocks that pay shareholders on a recurring basis simply for holding shares in the company.

In Canada, there are a large number of dividend stocks that investors should take note of. Some of the best dividend stocks around have the ability to grow their dividend distributions each year. In this article, I’ll discuss three TSX stocks that are genius buys for dividend growth.

Start with one of the best dividend stocks in the country

When looking for dividend stocks to hold in your portfolio, it would be a good idea to consult the list of Canadian Dividend Aristocrats. This is a list of companies that have increased their dividends for at least five consecutive years. What makes these companies so attractive is that their inclusion on that list tells investors that the management team leading that company is capable of intelligent capital allocation. In addition, a continually growing dividend helps passive-income investors stay ahead of inflation.

When it comes to Canadian dividend stocks, few are more impressive than Fortis (TSX:FTS). Fortis holds the second-longest active dividend-growth streak in Canada (49 years). Fortis’s management team has also announced that the company plans to continue growing its dividend at a rate of 4-6% through to 2027. If I could only buy one dividend stock today, I would turn to Fortis. This utility company has been an excellent dividend stock for nearly five decades and shows no signs of slowing down. Investors can also enjoy a forward yield of 4.20% buying shares today.

This stock’s dividend has grown very fast

If the dividend-growth rate is more important to you, consider investing in goeasy (TSX:GSY). For those that are unfamiliar, this company operates two distinct business segments. Its first business segment is easyfinancial, which provides high-interest loans to subprime borrowers. Its second business segment is easyhome, which sells furniture and other durable home goods on a rent-to-own basis. Given the economic conditions that consumers have experienced over the past three years, goeasy’s business has been thriving as of late.

That financial success has helped goeasy grow its dividend at an incredible rate. In 2014, goeasy’s quarterly dividend was $0.085 per share. The stock’s upcoming dividend distribution will be $0.96 per share. That represents a compound annual growth rate (CAGR) of about 31% over the past nine years. With a dividend-payout ratio of 43.2%, goeasy still has a lot of room to continue growing its dividend in the future.

Don’t miss out on this blue-chip stock

Finally, dividend investors should turn to blue-chip stocks when looking for more companies to add to their portfolio. This is because blue-chip stocks tend to be more established companies and have more stable finances compared to growth stocks. One blue-chip stock worth buying today is Canadian National Railway (TSX:CNR). If you live in Canada, there’s a very good chance you’re familiar with this company. It operates nearly 33,000 km of track and a rail network that spans from British Columbia to Nova Scotia.

Listed as a Canadian Dividend Aristocrat, Canadian National has managed to increase its dividend in each of the past 27 years. Over that period, Canadian National’s dividend has grown at a CAGR of 5.4%. That growth rate is certainly more modest than goeasy’s dividend-growth rate; however, investors have managed to stay ahead of inflation for nearly three decades with this stock.

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 Jed Lloren has no position in any of the stocks mentioned. The Motley Fool recommends Canadian National Railway and Fortis. The Motley Fool has a disclosure policy.

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