Dividend-paying stocks attract young and old investors, including retirees, who need added financial sustenance in the sunset years. However, nothing is more enticing to income investors than dividend increases. I’m not 100% sure, but three companies could increase their dividends soon.
Peyto Exploration & Development (TSX:PEY) is a top candidate after reporting record profit and cash flow in 2022. Dividend Aristocrats Canadian Western Bank (TSX:CWB) and Killam Apartment (TSX:KMP.UN) could extend their dividend-growth streaks by boosting payouts to investors.
Shareholder return model
Peyto believes a low-cost producer with a long-reserve life asset base could maintain a profitable business to ensure sustainable dividends. According to management, the $2.07 billion exploration and production company has a sizable advantage over the industry, given the high 71% average operating margin in the last 21 years.
In 2022, Canada’s fifth-largest natural gas producer reported new records in earnings and funds from operations. The former rose 157% to $390.66 million versus 2021, while the latter climbed 77% year over year to $811.77 million. Another highlight was the free funds flow of $320.73 million, representing a 207% jump from a year ago.
Peyto pays an over-the-top 11.06% dividend following the 120% increase in monthly dividends in January 2023. If strong operational and financial performance sustains, management could further maximize shareholder returns with dividend increases. The energy stock trades at $11.93 per share (-10.85% year to date) — a good entry point.
Consistent dividend growth
CWB’s dividend-growth streak of 31 years is the longest in the banking sector. While the $2.37 billion bank is outside the Big Six circle, the current payout and future dividend potential are stable. Moreover, the payout ratio is only 36.47%, and the most recent dividend hike (March 2023) was 7%. At $24.66 per share (+3.76% year to date), the yield is a juicy 5.24%.
Its president and chief executive officer (CEO) Chris Fowler expects CWB to deliver strong full-service growth this year after hitting its loan growth target in the first quarter (Q1) of fiscal 2023. The secured lending model and disciplined underwriting processes should support revenue growth and drive profitability.
Like Peyto, Killam is among the selected few on the TSX that pays monthly dividends. At $17.75 per share, current investors enjoy a 10.96% year-to-date gain in addition to the decent 3.94% dividend yield. This $2.08 billion growth-oriented real estate investment trust (REIT) owns and operates 231 apartment properties, 40 manufactured home communities (MHCs), and nine commercial properties.
Killam should benefit from the ongoing affordability crisis in Canada’s housing market. Its president and CEO Philip Fraser said, “Fundamentals in our core markets are stronger than ever. Looking forward, we expect our portfolio to maintain healthy revenue and net operating income (NOI) growth.”
In Q1 2023, net income and NOI increased 39% and 12.3% year over year to $83.5 million and $50.8 million. Killam earned Dividend Aristocrat status due to six consecutive years of dividend increases; another one might be forthcoming in 2023. Meanwhile, investors can reinvest their dividends to accumulate more shares through Killam’s dividend-reinvestment plan.
Reward to investors
Many companies reward shareholders with dividend bumps when profits or free cash flows rise. Peyto, CWB, and Killam have higher yields today, because their businesses thrive.