Across the border, Dividend Aristocrats are stocks that have raised their dividends every year for 25 years or more. In order to be an aristocrat, a stock must not only have paid its dividend every year for 25 consecutive years, but increased the amount of the payout each year as well. It’s a pretty stringent standard, which is why there aren’t very many Canadian 25-year dividend aristocrats out there. However, they do exist, and there is some evidence that they outperform the market. In this article, I will explore three Canadian dividend aristocrats that have paid consistent income to shareholders over decades.
Fortis Inc (TSX:FTS) is a Canadian dividend aristocrat that has raised its dividend every single year for 49 consecutive years. If it does another dividend hike next year, then it will become a Dividend King – a stock with 50 consecutive years of dividend increases.
Why has Fortis been so consistent about paying its dividend?
For one thing, all utilities – the industry that Fortis is a part of – have advantages in this regard. Utilities are essential services, the demand for which is pretty inelastic. That means that people don’t change their consumption a lot in response to changes in price or their income. This makes perfect sense because people require utilities to heat their homes, and they can’t simply cancel the service. They can reduce usage (i.e., keep lights off) but they’ll most likely keep using it, even in a recession. So, utilities enjoy stable revenue.
On a company-specific level, Fortis has a high level of regulated utilities (98%), and has invested somewhat more in growth than the average utility has, acquiring assets in the United States and Caribbean. This strategy has led to a very strong dividend growth track record.
The Canadian National Railway (TSX:CNR) is a Canadian railroad stock with a very long dividend growth track record. Over the last five years, the company has raised its dividend by 11.6% per year. Its dividend growth track record is not as long as Fortis’, but the annual growth has been better in recent years. CNR’s yield is not high, but the growth could make the yield-on-cost pretty high in another decade if the company can keep it up.
Why has CN Railway been able to achieve such strong dividend growth?
For one thing, it has a strong competitive position. CN Railway only has one major competitor in Canada, and a small handful in the United States.
For another thing, CNR’s network covers a huge percentage of North America, touching on three coasts (it is the only railroad that has this distinction).
Finally, rail transportation is cost efficient compared to trucks and planes, giving the sector good economics.
Enbridge Inc. (TSX:ENB) is another Canadian stock with a very long dividend growth track record. Over the last 68 years, it hasn’t missed a dividend; over the last 28 years, it has grown its dividend at 10% per year. Enbridge is somewhat similar to Fortis in that it locks in long term, recurring revenue from its clients, oil companies that need to transport crude. The pipeline developer and operator also operates as a natural gas utility. I’m not as big a fan of Enbridge as I am the other two stocks on this list. It pays out more in dividends than it brings in in earnings, and it has an enormous amount of debt. Still, it is worth mentioning as it is a dividend aristocrat.