Regardless of percentage increase, dividend hikes matter to income investors because they preserve purchasing power from runaway inflation. The payouts can likewise mitigate or compensate for the decline in share prices due to elevated market volatility.
Investors with investments in Laurentian Bank of Canada (TSX:LB) and Dollarama (TSX:DOL) are welcoming dividend increase announcements from both dividend-paying companies. The bank stock’s quarterly dividend, payable on May 1, 2023, is 5% higher than a year ago. Meanwhile, the discount retailer’s dividend bump is 28%, with the payout date on May 5, 2023 (ex-dividend date is April 13, 2023).
Fully diversified bank
Laurentian Bank isn’t a Big Six bank but has an equally impressive history of paying dividends. The financial stock trades at $31.42 per share (-1.32% year-to-date), yielding a mouth-watering 5.86%. There should be no worry about dividend sustainability as the payout ratio is only 37%.
Moreover, market analysts forecast earnings per share to rise by 4.9% over the next year, in which case, the future payout ratio could be lower than the current level. The dividend will increase, notwithstanding the 6% decline in Q1 fiscal 2023 net income to $51.9 million versus Q1 fiscal 2022.
Rania Llewellyn, LB’s President and CEO, said, “We had good financial results this quarter driven by growth in Commercial Banking while also maintaining healthy capital ratios and liquidity levels.” She also considered the launching of the reimagined VISA experience a key milestone.
According to Llewellyn, the digital product is a game-changer and should allow LB to grow its brand and attract new customers across Canada. She adds that LB is highly diversified with multi-year agreements with a growing number of strategic partners. The bank also capitalizes on its expertise in inventory financing.
Some industry experts raised concerns about the potential ripple effect of the collapse of Silicon Valley Bank (SVB) on the $1.4 billion diversified financial services provider from Canada. Llewellyn clarifies that LB has no major concentration in the venture capitalist (VC) space like SVB and has zero cryptocurrency exposure.
She adds that LB is highly diversified with multi-year agreements with a growing number of strategic partners. Apart from prudently managing its level of liquid assets (23% of total assets as of January 31, 2023), LB’s funding sources are sufficient to meet all liquidity requirements.
Enduring strength of the business model
Dollarama pays a modest 0.34% dividend, but the recent nearly 30% hike lends confidence to invest in the $23.4 billion Montreal-based company. Given the ultra-low 8% payout ratio, there’s plenty of room for dividend growth over the long term. At $82.26 per share, the consumer-defensive stock is up 3.95% year to date.
In fiscal 2023 (12 months that ended January 31, 2023), sales and net earnings rose 16.7% and 20.9% to $5.05 billion and $801.9 million, respectively, versus fiscal 2021. Dollarama’s President and CEO, Neil Rossy, said, “Strong operational and financial results reflect the continued positive consumer response to our year-round value proposition, which has only been reinforced in the context of high inflation.”
Somehow, high inflation is positive for Dollarama compared with other businesses. The enduring strength of its unique business model is a competitive advantage.
Good prospects
Other dividend-payers have announced or will announce dividend increases in 2023 despite the challenging environment. Laurentian Bank and Dollarama are good prospects for income investors in April 2023.
